Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698942042338.pdf (South Africa)
Consolidated general report on local government audit outcomes MFMA 2020-21 Foreword from the auditor-general The South African Constitution envisaged that citizens will live in cities, towns and settlements where they have access to clean water, sanitation, electricity, refuse services, and good roads and infrastructure.
A country where their elected representatives in council will ensure that the rates and taxes they pay and the funds provided by national government for basic services and infrastructure development are accounted for and used for their intended purpose.

them, and the instances where we had to invoke our new powers of enforcement when we were not taken seriously.

S adly, this is not the lived reality of most citizens in the country.
Local government is characterised by accountability and service delivery failures, poor governance, weak institutional capacity, and instability.

As an office, we are committed to doing our part to instil As a chapter 9 institution, my office has a role to play integrity in local government, which will ultimately result in in strengthening our constitutional democracy, which a better life for the people of South Africa.

Only through aims to improve the quality of life of all citizens.
We accountability and enforcement can we build public trust in do this through our audits of local government, which local government.

a culture of performance, accountability, transparency and give us unique insights into the failures, successes and challenges in local government and those that support them in national and provincial government.
Armed with these learnings, we can contribute to much-needed improvement in local government by sharing our insights widely, making recommendations, and advocating for commitment by leadership at all levels of government to play their part.

I firmly believe that courageous, ethical, accountable and citizen-centric leadership is needed to turn the tide in local government.
That is why the theme of this general report is Capable leaders should demonstrate change by strengthening transparency and accountability.
The information and insights presented in this flagship Lastly, I wish to thank the audit teams from my office and publication of my office are aimed at empowering the audit firms that assisted with the auditing of local the new administration and all role players in the government for their diligent efforts in helping us fulfil accountability ecosystem to focus on those issues that will our constitutional mandate, and for the manner in which enable good financial and performance management, they continue to strengthen cooperation with government compliance with legislation as well as service delivery leadership.
I also wish to thank the leadership of all by municipalities.

This report also highlights the progress we have made in implementing the enhanced mandate granted to us by the amendments to the Public Audit Act.

municipalities for working with us during the audit process.
We report on the material irregularities identified, the Tsakani Maluleke progress made by municipal leadership towards resolving Auditor-General MFMA 2020-21 To access the content of this report on our website, simply use the QR code scanner on your mobile phone or tablet to scan the code.
Contents SECTION 01 Introduction SECTION 02 2.1 Audit outcomes and material irregularities 2.2 Financial reporting 2.3 Financial health 2.4 Information technology controls 2.5 Service delivery – planning and reporting 2.6 Service delivery – municipal infrastructure 2.7 Service delivery – impact at disclaimed municipalities 2.8 Procurement and payment transgressions and risks 2.9 Accountability and consequences SECTION 03 Activating the accountability ecosystem – a call to action SECTION 04 Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape SECTION 05 Audit fact sheet 04 08 08 16 20 25 30 34 37 45 48 56 60 61 63 65 67 69 71 73 75 78 80 Visit www.mfma-2021.agsareports.co.za for detailed information on the outcomes of each municipality, district and province in the country.
SECTION 01 INTRODUCTION The South African Constitution envisages a local government system that provides services to communities in a sustainable manner, promotes social and economic development, and enables a safe and healthy living environment.

This system is designed to be a democratic and accountable government for local communities, allowing communities and community organisations to be involved directly in the matters of local government through public participation processes.
T he country’s aspirations to improve the quality of life of all citizens should be most evident at municipal level through the provision of water, sanitation, electricity, under administration or provincial intervention, which further increased to 33 municipalities by February 2022.

This means that these municipalities had become so 04 refuse services, roads and infrastructure, as well as dysfunctional that national and/or provincial government through enabling economic development.
Unfortunately, had to step in to try and restore governance, financial this is not the case.

management and service delivery.

Administrators are then appointed by the national and/or provincial Low levels of trust and public frustration at the lack of government to manage and oversee the day-to-day service delivery and financial mismanagement are high.

running of these municipalities.


The frustration finds expression in a number of ways, from service delivery protests to citizens opting out of public Over the term of the previous administration, we were services in favour of providing their own services or using consistent in our messages about the progressive private services.

Citizens have also resorted to litigating and sustainable improvements required to prevent against municipalities for failure to deliver services.
Businesses are moving out of municipal areas with poor accountability failures in local government and to deal with them appropriately when they do occur.

service delivery, resulting in increased unemployment We emphasised the need to strengthen the basic and a loss of municipal revenue in those areas.
financial and performance management disciplines and to safeguard and maintain municipal assets and In 2021, the Department of Cooperative Governance infrastructure to prevent mismanagement, transgressions, reported that 64 municipalities were dysfunctional.

non-performance, fraud and financial loss.

Unfortunately, This dysfunction is rooted in poor governance, weak these issues persist.
Our message was always directed institutional capacity, poor financial management, corruption and political instability.

In June 2017, eight to leadership, imploring them to turn the tide in local government – as encapsulated in the theme of our municipalities were under administration or provincial 2019-20 general report, Ethical and accountable intervention.

By June 2021, 23 municipalities were leadership should drive the required change.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 01 This general report reflects on the municipal audit delivery objectives, used the budget as intended outcomes over the term of the previous administration and is in a good financial position.

The council and provides insight and information from our audits of also plays a significant role in investigating and the 2020-21 financial year.
It presents a not-to-be-missed dealing with irregular, unauthorised, and fruitless and opportunity for the new administration to learn from the wasteful expenditure; fraud and corruption; and any successes and failures of the past and heed our call transgressions and non-performance by the municipal to action to transform local government and improve manager and senior management.

The accountability people’s lives.


We have a vision, shared by many, for this new administration to make significant strides towards instilling a culture of performance, accountability, transparency and integrity in local government.
This is what the Constitution envisaged: municipalities that perform by delivering services and are transparent about their level of performance and management of municipal finances, which in turn will enable these municipalities to be accountable to the communities they serve.

Above all, communities want to see their elected representatives and municipal officials act with integrity – being honest, ethical and incorruptible, and complying with legislation.
processes for municipal administration lie squarely within the domain of the council.

When a municipality receives a clean audit opinion, it means that its financial statements and performance report give a transparent and credible account of its finances and its performance against the targets that had been set.

In other words, these accountability reports present a reliable picture of that municipality’s performance – whether good or bad.
This enables the council and everyone with an interest in the municipality – particularly communities, community organisations, and those in national and provincial government who need to oversee the municipality’s performance and provide the support it needs to succeed – to judge how the municipality is doing and take action where necessary.
A clean audit opinion also means that the 05 municipality complied with the important legislation that applies to it and, where transgressions did occur, they Our role is to audit every municipality and municipal were rare or not material.

entity in the country, report on what we have found, and share the insights to strengthen transparency and A clean audit is not always an indicator of good service enable accountability.
This is especially significant delivery and does not always correlate directly to the if one considers that municipalities and municipal lived experience of all the communities in a municipal entities were responsible for an estimated expenditure area.

However, we have seen that municipalities with budget of R509 billion in 2020-21.
It is not merely institutionalised controls and systems to plan, measure, a matter of compliance for us but a genuine effort to monitor and account for their finances and performance, ensure improvement and enforce accountability where it is lacking.

and to stay within the rules, often also have a solid foundation for service delivery.

When this is the case, municipalities can focus on ensuring the delivery of As part of our reporting, we inform councils quality services to all of their residents.
of the quality of the financial statements and performance reports, the status of compliance Through our audits, we also do work on areas that can with key legislation and any material irregularities contribute significantly to the success of a municipality, identified.
We specifically report to the councils as such as financial health, infrastructure development they are responsible for approving the budget and performance plans; in-year monitoring; and using and maintenance, the control environment (including information technology controls), procurement and the financial statements and performance report to contract management, consequence management, and determine whether the municipality achieved its service aspects of environmental management.
We recently MFMA 2020-21 Consolidated general report on local government audit outcomesINTRODUCTION introduced real-time audits as well – with one of the first focusing on the financial management of local government’s covid-19 initiatives, which culminated in a special report tabled on 30 June 2021.
Through our expanded mandate, and the ensuing material irregularities in particular, we have enriched our insights and strengthened our ability to influence and enforce performance, accountability, transparency and integrity in local government.

In response to the material irregularities we identified, municipalities are taking action to recover losses, prevent further losses and harm through strengthening internal controls, and effect consequences for transgressions.
We do not hesitate to use our enforcement mandate if material irregularities are not responded to with the required seriousness and urgency.

We included recommendations in the audit reports and the auditor- general invoked her additional powers of referral and remedial action.

Ultimately, however, the municipal manager (supported by senior management) is responsible and accountable for the finances and performance of a municipality.
This responsibility requires the establishment of institutionalised 06 management practices and disciplines as a foundation for planning, budgeting, financial management, asset management and service delivery.
For example, if there are no plans for the maintenance of municipal infrastructure, money will not be allocated in the budget to fund maintenance, the projects will not be executed, and the infrastructure will deteriorate until it can no longer support service delivery – and even cause harm to communities.

We found this state of affairs at municipalities with repeatedly disclaimed audit opinions, as detailed in section 2.7.
The audit committee and internal audit unit play an important role in providing the municipal manager with an independent view of the effectiveness of municipal controls and processes.

As mentioned above, the council is the executive and legislative authority of the municipality.

But a municipality does not function in isolation – it is part of a bigger system of government.

The Constitution requires national and provincial government to support and strengthen the capacity of local government.
Active citizenry is also crucial to ensure that municipal leadership is accountable to communities.
Accountability ecosystem INTERNAL AUDIT UNIT COUNCIL MUNICIPAL PUBLIC ACCOUNTS COMMITTEE MAYOR AND SPEAKER PROVINCIAL LEADERSHIP PREMIER’S OFFICE COOPERATIVE GOVERNANCE TREASURY AUDIT COMMITTEE MUNICIPAL MANAGER SENIOR MANAGEMENT OFFICIALS INFLUENCE COORDINATING DEPARTMENTS PARLIAMENT AND PROVINCIAL LEGISLATURES Leadership and decision makers INSIGHT ENFORCEMENT Support, intervention and oversight Active citizenry MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 01 The success of local government rests on the ability of this national and provincial leadership and community whole accountability ecosystem to work together: for all organisations.
We have engaged with many role role players to not simply operate within their silos, but to players to share our insights from the audits and we function collaboratively with an awareness of how their remain encouraged and positive about the commitments respective roles influence and affect each other.

they have made to play their part in improving local government.
We will monitor the implementation, This report is therefore not intended for only local effectiveness and impact of these commitments over the government leaders; it is equally important for term of the new administration.

This report summarises our key messages covering the following areas (with the detail we used to include in previous editions now being available on our website): 1.
We report on the state of local government over the term of the fourth administration, dealing with: » Audit outcomes and material irregularities » Financial reporting » Financial health » Information technology controls » Service delivery – planning and reporting » Service delivery – municipal infrastructure » Service delivery – impact at disclaimed municipalities » Procurement and payment transgressions and risks » Accountability and consequences 07 2.
We reflect on the contributions of key role players in the accountability ecosystem and share our recommendations and the commitments made as a call to action 3.

We report on the state of local government in each of the nine provinces 4.
We share information on the audits we performed and explain the numbers used in the report In support of greater transparency that will enable accountability, our website – for the first time – now also includes the following information, covering each municipality, district and province in the country: » Audit outcomes and information per municipality » Key information on audit outcomes per district » An overview of audit outcomes and recommendations per province » A report on the material irregularities identified at municipalities and the status of these material irregularities MFMA 2020-21 Consolidated general report on local government audit outcomesINTRODUCTION SECTION 02 STATE OF LOCAL GOVERNMENT 2.1 Audit outcomes and material irregularities Audit outcomes Audit outcomes are based on the audits we perform on the quality of financial statements and performance before the financial statements were published.
The municipality also had challenges with the quality of the performance report and/or compliance with key legislation.

4.

The financial statements of a municipality with an adverse opinion with findings included so many material misstatements that we disagreed reports as well as on compliance with key legislation.

with virtually all the amounts and disclosures 08 The outcomes fall into the following categories: in the financial statements.
A municipality with a disclaimed opinion with findings could not provide us with evidence for most of the amounts 1.

A financially unqualified opinion with no findings and disclosures in the financial statements.

We (clean audit) means the municipality: » produced quality financial statements free of were therefore unable to conclude or express an opinion on the credibility of the financial material misstatements (in other words, errors or statements.
Municipalities with adverse and omissions that are so significant that they affect disclaimed opinions are typically also unable to the credibility and reliability of the financial provide sufficient supporting documentation for statements) » produced quality performance reports that measure and report on performance in a manner that is useful and reliable » complied with key legislation.

2.
2.

A financially unqualified opinion with findings means the municipality was able to produce quality financial statements, but struggled to produce quality performance reports and/or to comply with all key legislation.

3.

A financially qualified opinion with findings means the municipality’s financial statements contained material misstatements that were not corrected the achievements they report in their performance reports and do not comply with key legislation.
The audit outcomes were in a bad state when the previous administration took over in 2016-17 and this state has not improved since then.

Some municipalities improved their audit outcomes, just to regress again in later years.

Overall, only 61 municipalities now have a better audit outcome than in 2016-17, with 56 now having a worse audit outcome.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Audit outcomes – municipalities 2016-17 First year of administration 33 114 72 2019-20 32 96 87 41 100 78 6 7 4 32 33 25 0 2 9 257 257 257 2020-21 2020-21 Expenditure budget R459 billion 16% 38% 30% 2% 10% 4% 18% 56% 20% 1% 4% 1% Unqualified with no findings (clean) Unqualified with findings Qualified with findings Adverse with findings Disclaimed with findings Outstanding audits It is encouraging that there has been a slight increase Kopanong, Maluti-A-Phofung and Masilonyana in the in the number of clean audits – 27 municipalities were Free State and Phokwane in the Northern Cape were able to maintain their clean audit status throughout the still outstanding by the date of this report.
The 2019-20 term of the previous administration, while 14 achieved a financial statements of Maluti-A-Phofung are also still 09 clean audit for the first time and six lost their clean audit outstanding.

status over the five-year period.

Clean audits continue to represent less than a fifth of the local government budget.
We reached out to key role players in the accountability ecosystem (municipal mayors and Over the term of the previous administration, the speakers as well as provincial premiers and members submission of financial statements by 31 August for of the executive councils for finance and local auditing worsened from 90% in 2016-17 to 82% in government) to intervene in the non-submission of 2020-21.

This not only delays the audit process but also financial statements.
We also informed the provincial the accountability processes.

legislatures, Parliament and the National Treasury.

Our audit leadership further repeatedly engaged with By the date of this report, nine audits had not been completed as the municipal managers did not submit the municipal managers and chief financial officers of these municipalities to encourage submission.

When the financial statements for auditing by the legislated all of this failed, we notified the affected municipal submission date.
Two of the municipalities were from managers and the board of a municipal entity that the the Northern Cape and seven were from the Free State.
non-submission of the financial statements constitutes a We elaborate further on the worrying trend of late material irregularity, as the delays in the accountability submissions in the Free State in section 4. processes are causing substantial harm to these We received the financial statements of five of these funds and the financial position of these municipalities municipalities from March to May 2022 and are should not be tolerated by councils, provincial and busy with their audits.
The financial statements of national leadership or oversight.

municipalities.

The lack of transparency for the use of MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT We are particularly concerned about the municipalities that repeatedly received disclaimed audit opinions over » District municipalities, which perform certain functions on behalf of municipalities, such as the term of the previous administration.
Turn to section 2.7 integrated planning, infrastructure development, for further detail on this concerning situation.

and the provision of electricity and public Local government comprises: transport.
A district municipality may or may not be a water services authority and may provide financial, technical and administrative support » Metropolitan municipalities, commonly known as ‘metros’, which are large urban complexes with services to a local municipality within its area and to the extent that it has the capacity to do so.

The populations of more than one million people.

2020-21 budget for district municipalities totalled They account for the largest portion of municipal R35,52 billion.
expenditure and serve the highest number of » Municipal entities, which are independent entities, households and thus most of the citizens in the that perform municipal services on behalf country.

They were responsible for a budget of of a municipality.
Their financial statements R247,48 billion in 2020-21. are consolidated into those of their parent » Intermediate cities, which are municipalities with large budgets (totalling R97,04 billion in 2020-21) and municipalities and their audit outcomes are equally important.

This is especially true in cases where which also serve a substantial number of households.
they are responsible for a significant portion of » Local municipalities, which can be large towns, small towns or rural areas; and which were the municipal expenditure and service delivery programmes, particularly in Gauteng.

Municipal responsible for a budget of R79,08 billion entities were responsible for a budget of in 2020-21.

R49,58 billion in 2020-21.
10 Audit outcomes and related information – municipalities and entities Movement over administration Percentage of budget (R509 billion) Total households* 0 0 0 8 Metropolitan municipalities Municipal entities District municipalities Intermediate cities Local municipalities * # 19% 4 822 861 166 31 42 16% 5 011 162 Unqualified with no findings (clean) Unqualified with findings Qualified with findings Adverse with findings Disclaimed with findings Outstanding audits * Household numbers taken from the National Treasury’s local government equitable share data and formula for 2020-21 * Household total for municipal entities is included under metropolitan municipalities # Household total for district municipalities comprises households under intermediate cities and local municipalities MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Metros and intermediate cities manage two-thirds of the expenditure budget in local government and are responsible for delivering services to 72% of South Africa’s households.
As they typically have greater capacity, bigger budgets and can more easily attract suitably skilled and competent professionals, one would expect their audit outcomes to be much better than those of their smaller counterparts – but sadly this is not the case.

Although 13 of these municipalities improved their audit outcomes over the term of the previous administration, nine are now in a worse state.
District municipalities showed significant improvement over the same period, but there is still work to be done – especially as they should be leading by example, with good audit outcomes.

Local municipalities have the highest concentration of disclaimed opinions and, as with municipal entities, are now in a worse position than at the start of the previous administration’s term.
This reflects poorly on the support provided by district municipalities to their local municipalities and by parent municipalities (mostly metros) to their municipal entities.

Material irregularities The audit outcomes, coupled with non-compliance with legislation, reflect the poor state of financial and performance management in local government.
This situation resulted in material financial losses at some municipalities, as well as substantial harm where municipalities were unable to fulfil their mandate and deliver services to the public.

Our audits have for many years highlighted that not only are irregularities and their resultant impact not prevented from happening, such instances are also not appropriately dealt with when they are identified.
This led to amendments to the Public Audit Act, which came into effect on 1 April 2019 and gave us the mandate to report on these matters as material irregularities and to take action if municipal managers do not deal with them appropriately.
Definition of a material irregularity and our expanded powers 11 Any non-compliance with, or contravention of, legislation, fraud, theft or a breach of a fiduciary duty identified during an audit performed under the Public Audit Act that resulted in or is likely to result in a material financial loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the general public If the accounting officer/authority does not appropriately deal with the material irregularities, our expanded mandate allows us to: Material irregularity 1 2 3 Refer material irregularities to relevant public bodies for further investigation Recommend actions in the audit report to resolve the material irregularity Take binding remedial action for failure to implement the recommendations Issue a certificate of debt for failure to implement the remedial action if financial loss was involved MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT The amendments were meant to establish a By safeguarding and recovering resources, money complementary enforcement mechanism to strengthen saved or recovered can be redirected towards service public sector financial and performance management so delivery.
We issue notifications of material irregularities to that these material irregularities can be prevented, or can encourage the sustainability of auditees so that they can be dealt with appropriately if they do occur.

work towards service delivery.


The overall aim of our expanded mandate is to: Our expanded mandate did not change the role and » promote better accountability » improve the protection of resources » enhance public sector performance and encourage an ethical culture responsibilities of accounting officers and authorities or the oversight and monitoring roles of the mayor and the council to prevent and deal with irregularities, such as non-compliance, fraud, theft and breaches of fiduciary duty.
Through the material irregularity process, we » ultimately, strengthen public sector institutions to strengthen them in this role.

better serve citizens.
Roles and responsibilities in material irregularity process Accounting officer and authority Oversight and executive authority Have a legal obligation to prevent all irregularities and take action if it did occur Oversight and monitoring roles remain unchanged 12 To strengthen the accountability mechanisms in the public sector AGSA AGSA • By reporting material irregularities, we highlight most material matters and provide information to assist oversight and monitoring roles • Identify irregularities that could have significant impact on auditee’s finances, resources and delivery • Notify accounting officer/authority so they can take appropriate steps in terms of legislation timeously • Give space to accounting officer/ authority to take required actions to deal with material irregularities before using our additional powers Success is: swift action by accounting officer/authority to resolve material irregularities and prevent recurrence MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Everyone in the accountability ecosystem has a crucial of debt but to enable corrective action to resolve the role to play.
Our role is to notify and report on material material irregularity.

A material irregularity is resolved irregularities, as we are doing.

Preventing and resolving if all steps have been taken to recover financial losses material irregularities are the responsibility of accounting or to recover from substantial harm, when further officers and authorities.
Councils, provincial leadership, losses and harm are prevented through strengthening oversight and national government also have their role internal controls, when there are consequences for the to play and should seize the opportunity to contribute to transgressions (which include disciplinary processes) an improved local government.

We include our call to and, if applicable, the matter has been handed over to action to councils in section 3. a law-enforcement agency.
In this third year of carrying out our enforcement The impact achieved by the material irregularity process mandate in local government, we expanded our work is evident from the actions taken by municipal managers significantly by implementing the process at more to resolve the material irregularities that resulted in, or is municipalities (94 in 2020-21, compared to 57 in likely to result in, financial loss.

These include: 2019-20 and nine in 2018-19).


There has been a shift at municipalities: from a slow response to our findings and recommendations over the years to attention now being paid to what we report as material irregularities and actions being taken to resolve these.

Steadily there has been a change in behaviour from inaction to action by municipal managers.

Where municipal managers were not responsive and did not take action, we used our enforcement mandate to take further action.
» Addressing incorrect billing of municipal services, resulting in increased revenue.

» Preventing financial losses even before it took place.

» Improving systems, processes and controls and the safeguarding of assets as well as making payment arrangements to prevent any further financial losses.

» Recovering financial losses or busy recovering financial losses.

13 » Stopping supplier contracts where money was being lost.

» Handing over matters to law-enforcement agencies.
» Identifying responsible officials and instituting Where municipal managers respond to our notifications disciplinary processes.

with commitment and workable plans to implement appropriate action to resolve the material irregularity, On the next page we look at some of the material the intended impact of the Public Audit Act amendments irregularities that have been fully resolved or are in the is achieved – the objective was not to issue certificates process of being resolved.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Examples of impact achieved » Corrected billing (fully resolved): Nelson Mandela Bay (Eastern Cape) did not charge interest in 2018-19 on debtors in arrears who had entered into long-term payment arrangements with the » » » » » municipality, resulting in a financial loss of R11,2 million.

The system deficiency was corrected and from February 2020 monthly interest is being charged.
Corrected billing (fully resolved): uMzinyathi (KwaZulu-Natal) corrected the problems around interest erroneously not being charged on long-outstanding debt, which resulted in a financial loss of at least R2,6 million being prevented.

Prevented financial loss (fully resolved): Emalahleni (Mpumalanga) did not make payments to a supplier on time, resulting in interest of R8,59 million being charged.
The municipal manager engaged with the supplier, resulting in the interest being reversed and thus preventing the loss.

Controls were also put in place to ensure the timeous payment of the supplier to avoid further interest charges.
Prevented further financial loss (fully resolved): Financial losses in 2019-20 as a result of late payments to Eskom by Newcastle (KwaZulu-Natal) were resolved through the municipal manager entering into a debt and repayment agreement with Eskom, suspending future interest charges.

Controls were also implemented to prioritise the payment of Eskom accounts, resulting in no further losses as a result of interest charges in 2020-21.
Prevented further financial loss (fully resolved): Late payments to the South African Revenue Service by Newcastle (KwaZulu-Natal) and Ngwathe (Free State), resulting in penalties and interest, were resolved by improving payment controls to ensure that statutory payments are made in time.
Contract stopped, disciplinary steps taken and matter handed over to law-enforcement agencies (busy being resolved): Rustenburg (North West) entered into a contract for the provision of automated fleet and fuel management solutions during June 2018.

The scope of work was extended during the price negotiation and items that were not part of the competitive bidding process, were included at higher than market-related prices.
Disciplinary steps were taken against the responsible officials, who either resigned or were dismissed.

The contract with the service provider was terminated in August 2019, based on a high court order, to prevent further financial loss.

The matter has also been referred to the Hawks and legal action has been instituted against the supplier to recover the financial loss.
» Disciplinary processes, recovery and preventing further losses (busy being resolved): The City of Johannesburg (Gauteng) incorrectly taxed gratuity payments to employees as severance benefit payments between 2014 and 2017.

This resulted in the municipality having to pay an additional R9,2 million in employee tax and R6,3 million in penalties and interest charged by the South African Revenue Service.
The officials responsible for the incorrect calculation have been referred to the council’s disciplinary board, the money overpaid to existing and former employees is in the process of being recovered, and arrangements have been made for training by the South African Revenue Service to prevent a recurrence.

By 15 April 2022, we were dealing with 185 material irregularities at various stages in the process.
We estimate the total financial loss of these material irregularities to be R3,9 billion, R1,6 billion of which was money lost by municipalities that had invested in VBS Mutual Bank.
14 MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Nature of material irregularities Procurement and payment Resource management Revenue management Interest and penalties Fraud and non- compliance Harm to general public Harm to public sector institution 10 10 2 23 Non-compliance in procurement processes resulting in overpricing of goods and services procured or appointed supplier not delivering Uneconomical procurement resulting in overpricing of goods and services procured Payment for goods or services not received / of poor quality / not in line with contract or to ineligible beneficiaries 14 13 4 Assets not safeguarded resulting in loss Loss of investments Inefficient use of resources – no/limited benefit derived from money spent 15 Revenue not billed 2 Debt not recovered 42 16 Eskom, water boards, lenders and suppliers not paid on time resulting in interest Payroll and value-added tax returns not paid on time or incorrectly calculated resulting in South African Revenue Service interest and penalties 2 2 Suspected fraud resulting in loss Non-compliance resulting in penalties 15 8 1 Non-compliance with environmental legislation resulting in pollution of water resources Landfill site mismanagement resulting in harm to public 24 7 Full and proper records not kept as evidenced by repeat disclaimed opinions resulting in substantial harm to municipalities Non-submission of financial statements MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT These material irregularities emerged in areas that form of quarterly reports to councils and treasuries.
were not complex, but in which auditees should have These reports are used for decision making and to basic disciplines and processes in place – to procure monitor spending, revenue generation and the use of at the best price, to pay only for what was received conditional grants.
and derive the intended benefit from the money spent, to make payments on time, to recover revenue owed Municipal managers are responsible for credible and to the state, to safeguard assets and investments, to reliable in-year financial reports and for quality year- prevent fraud, and to comply with legislation.

end financial statements that can be relied upon by the users of such financial statements.
Municipal managers Poor record keeping and financial management are supported by finance units led by chief financial disciplines also resulted in substantial harm to officers, internal audit units and audit committees, municipalities that have repeatedly received disclaimed consultants, and coordinating departments.

audit opinions, as this affected their ability to deliver services to communities in a financially sustainable Overall, the average vacancy rate of the finance manner.
In the past year, we also for the first time raised unit at municipalities was 20%, while chief financial material irregularities where significant weaknesses in officers were in their position for an average of infrastructure and environmental management resulted in 45 months.

The salary cost for finance units totalled pollution that caused harm to the general public.

R10,41 billion in 2020-21.


Internal audit units at 93% of municipalities and audit committees at In section 2.9, we share the status of the material 96% of municipalities reviewed the prepared financial irregularities and how we have used our enforcement statements, while national and provincial coordinating mandate, while section 3 includes recommendations to departments deployed specialist advisors to support the new councils on their role.
Throughout this report, finance units and provided tools to help ensure that 16 we also provide examples of the material irregularities financial reporting was credible.

In addition, local we have identified, their impact and whose municipalities can ask district municipalities to provide responsibility they are.

2.2 Financial reporting additional support for financial reporting.
Financial reporting consultants have become permanent features in municipalities’ financial reporting processes, with the cost of these consultants amounting to The municipal council uses financial statements to R1,26 billion in 2020-21.

The cost of consultants call the municipal manager to account and to make doubled over the term of the previous administration.

financial and related service delivery decisions.


Creditors, banks and rating agencies use them to When combining the money spent on finance units determine how much risk there is in extending debt to a and consultants, it is clear that financial reporting municipality, and the public uses them to see how well the municipality is using the rates and taxes collected carried a substantial price tag in 2020-21 of just over R11,67 billion.

to provide services.


Financial statements are a key instrument for accountability.

Despite all of these resources and support, the key management controls of municipalities were not Financial reporting does not only happen at the end adequate to prevent material misstatements in the of the year but also takes place during the year in the financial statements.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Status of key financial management controls and quality of financial statements before and after auditing Proper record keeping Daily and monthly controls 28% 42% 30% 26% 35% 39% 64 98 70 61 81 90 In-year and year-end reporting Review and monitor compliance 14% 42% 44% 13% 35% 52% 33 97 102 31 81 120 Before audit After audit 25% 57% 75% 43% 62 186 141 107 Good Of concern Intervention required Modified Unmodified Despite us reporting shortcomings and providing recommendations over the years as well as numerous and costly national and provincial initiatives and interventions, the poor status of key financial management controls shows that municipalities have not yet mastered financial reporting – 75% of municipalities were not able to submit quality financial statements for auditing.
» Property, infrastructure and equipment (27%): Municipalities could not properly account for their assets because asset registers were not updated with assets purchased, under construction, disposed of, stolen or vandalised.

In some cases, the value of the assets recorded was incorrect despite the use of consultants.

» Irregular expenditure (27%): Municipalities did not report all irregular expenditure that should have been reported in their financial statements.
In some 17 If we had not identified the material misstatements and cases, the amount of the irregular expenditure allowed for corrections, only a quarter of municipalities reported was incorrect.

would have produced financial statements that were » Revenue (27%): Municipalities did not have reliable enough for the council and other decision adequate documentation to support the revenue makers to use.
In total, 79 municipalities (32%) relied billed; and not all of the revenue that should have on the external audit process to identify misstatements, been billed to residents for services rendered had which allowed them to obtain an unqualified audit been billed.

In some cases, amounts billed for opinion.

But this resulted in increased audit fees – a situation that could have been avoided.

services rendered were recorded incorrectly.


» Expenditure (25%): Municipalities did not have The following were the main areas misstated in the reported.

In some cases, they did not record all the financial statements of those municipalities with modified expenditure that should have been recorded.
adequate documentation to support the expenditure opinions (in other words, those with qualified, adverse or disclaimed opinions): » Receivables (27%): Municipalities did not know the correct amount due to them (receivables) and The poor quality of the financial statements submitted for auditing does not bode well for the credibility of municipalities’ in-year financial reporting, as it means that decisions, analyses and monitoring could be based whether they were still entitled to receive the amounts on unreliable information.
due.

In some cases, the value of the receivables recorded was not accurate.

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT The ineffective use of consultants for financial reporting after year without ensuring that skills are transferred to municipal staff; hence, what was intended to be a short-term solution, continues indefinitely.
In total, 79% Financial reporting consultants cost local government of municipalities reappointed consultants used in the R5,31 billion over the term of the previous administration and 70% of municipalities used consultants for every year of the term.

previous year.
previous year.

Most of the 2020-21 consultant costs of R1,26 billion were used for asset management services (34%), The National Treasury issued a circular to municipalities followed by the preparation or review of financial in 2016 dealing with cost containment, requiring municipal managers to only appoint consultants if a gap analysis confirmed that the requisite skills or statements (27%), and tax services (27%).
Consultants appointed for asset management services were rarely used for complex accounting matters, but rather for resources are not available to perform the work.

It also basics such as the recording and valuation of assets, reminded municipalities of the legislated requirements which are the fundamentals of good asset management.

to closely monitor contracts and the importance of transferring skills.
The responsibility for the effective use The expected benefits of using consultants to enable of financial reporting consultants lies with the municipal quality financial statements were not always apparent.

manager and the chief financial officer.


The financial statements submitted for auditing by 121 (59%) of the municipalities that used consultants In 2020-21, only 7% of municipalities used consultants had material misstatements in the areas in which the to bridge a vacancy gap and 62% appointed consultants did work.

Even after corrections, 41% had consultants to provide skills that the finance unit did not modified opinions, including three municipalities with 18 have.
The remaining 31% used consultants because of adverse opinions and 18 with disclaimed opinions.

both a lack of skills and a vacancy gap.

The inability We share our observations on the use of financial of these municipalities to master credible financial reporting consultants at municipalities with disclaimed reporting means that they appoint consultants year opinions in section 2.7.
Reasons consultants were not effective 6% 11% 17% 21% Inadequate / lack of records and documentation 55 Poor project management 26 45% Work of consultants not adequately reviewed 20 Consultants appointed too late 13 Consultants did not deliver 7 MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Inadequate records and documentation Inkosi Langalibalele (KwaZulu-Natal) was again disclaimed in 2020-21 despite consultants having been used each year during the term of the administration.
After the amalgamation of uMtshezi and Imbabazane to form Inkosi Langalibalele, significant challenges in the credibility of the financial records (such as the accuracy of take-on balances) were not addressed due to a lack of records and inadequate skills.

Although the finance unit was fully staffed, staff still did not have adequate skills – this despite the continued use of consultants and the appointment of an administrator since 2016-17.
In 2020-21, the salary cost of the finance unit was R13,95 million and the municipality paid R28,35 million to financial consultants.

Late appointment of consultants Nquthu (KwaZulu-Natal) appointed consultants only on 29 June 2021 for the 30 June 2021 year-end, despite the finance unit vacancy rate of 28% and the contract of the chief financial officer being terminated.
The municipality again received a disclaimed audit opinion, as sufficient time was not afforded to the consultants throughout the year to try and improve the audit outcome.

At seven municipalities (6%) (one each in the Eastern manage consultants.

Where municipalities did Cape, North West, Northern Cape, Limpopo and not review the work of consultants, they effectively KwaZulu-Natal as well as two in Mpumalanga), outsourced their responsibilities.
In these cases, consultants were not effective because they did not consultants continue to accept appointments despite it deliver the required services.

For example, consultants being unlikely that they will add value to municipalities.
19 made adjustments to the accounting records that could The ethical code for professional accountants requires not be supported or their work contained errors, and them to evaluate threats such as questionable financial they could thus not produce financial statements without reporting practices that might influence ethical any material misstatements – the task for which they principles before accepting any engagements.

We were appointed.
We were appointed.

Municipalities paid these consultants plan to engage with consultants and the profession on a total of R78,8 million.

ethical implications after the tabling of this report.
We find it concerning that consultants were not We are pursuing material irregularity notifications at effective in the remaining 94% of instances, as municipalities where the ineffective use of financial municipalities did not provide adequate records, reporting consultants resulted in material financial appointed consultants too late, or did not effectively losses.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT 2.3 Financial health Our assessment of the financial health of 230 municipalities and 18 municipal entities based on Municipalities cannot continue to operate and provide their financial statements showed increasing indicators services if financial health concerns remain.
Yet local of a collapse in local government finances and government finances remain under severe pressure due continued deterioration over the term of the previous to non-payment by municipal debtors, poor budgeting administration.

At 22 municipalities and one municipal practices, and ineffective financial management.

entity, the financial statements were not even reliable enough for us to analyse because of disclaimed or adverse audit opinions.
Status of financial health – overall and breakdown per municipal category Overall 248 R494 bn Metropolitan municipalities 8 R248 bn Municipal entities 18 R49 bn 16% 57% 27% 27 79 21% 61% 18% 0 4 2% 92% 6% 1 6 R81 bn 36 R281 bn 134 R133 bn 78 R52 bn 1 R151 bn 5 R45 bn 2 R1 bn 2 R45 bn 14 R3 bn 2 Intermediate cities 38 R94 bn District municipalities 41 R32 bn Local municipalities 143 R71 bn 20 14% 33% 53% 3 9 6% 56% 38% 11 12 18% 50% 32% 12 48 R13 bn 5 R31 bn 17 R50 bn 16 R2 bn 7 R18 bn 24 R12 bn 10 R13 bn 21 R35 bn 74 R23 bn 48 Number of auditees Expenditure budget Good Of concern Intervention required Movement over administration The financial health of metros is particularly concerning, as they serve the largest segment of the population and account for more than half of the local government expenditure budget.
METROS The City of Tshwane (Gauteng), City of Johannesburg As cash-strapped consumers fall behind on paying (Gauteng), City of Ekurhuleni (Gauteng), City of municipal rates and taxes, credit-rating agencies are Cape Town (Western Cape) and Nelson Mandela flagging an increased concern around the likelihood Bay (Eastern Cape) were all downgraded to below of metros being unable to meet their debt payments investment grade by 30 June 2021.
The downgrades or source cash from capital markets to meet future put pressure on some of the metros to raise funding obligations due to falling revenues.

The debt of metros for capital expenditure, and they had to use internal savings from operational budgets to fund shortfalls.

that is unlikely to be recovered in full ranged from 53% to 88%.
Although some of these metros have cash Most of the metros were put on review for further reserves, its further use to make up revenue shortfalls downgrades by the credit-rating agencies, meaning that will reduce the metros’ capacity to meet future debt they could plunge deeper into sub-investment territory if obligations as they fall due.

economic conditions worsen.


MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Financial health trends The financial position of 28% of South Africa’s municipalities is so dire that there is significant doubt whether they will be able to continue operating as a going concern in the near future.

This effectively means that such municipalities do not have enough revenue to cover their expenditure and that they owe more money than what they have.
Many of these municipalities have been in this dire financial position multiple times over the term of the previous administration.
Municipalities with going concern problems NORTH WEST City of Matlosana (5) Mahikeng* (5) Maquassi Hills (5) Tswaing* (5) Mamusa (4) Naledi* (4) Kgetlengrivier* (3) Moses Kotane (3) Rustenburg (3) NORTHERN CAPE Dikgatlong (5) Magareng (5) Gamagara (5) Ga-Segonyana (5) Kamiesberg (5) Khai-Ma (5) Thembelihle (5) Ubuntu (5) Emthanjeni (4) Richtersveld (4) Siyathemba (3) WESTERN CAPE Cederberg (1) 2020-21 was first year of disclosure GAUTENG Sedibeng (5) Rand West City (5) Emfuleni* (4) West Rand* (4) City of Tshwane (3) LIMPOPO Mopani (5) Thabazimbi (5) Modimolle-Mookgophong (5) Musina (4) Ba-Phalaborwa (1) 2020-21 was first year of disclosure LP NW GP MP FS KZN EC NC WC EASTERN CAPE Amathole* (5) King Sabata Dalindyebo (5) Kou Kamma (5) Makana* (5) Raymond Mhlaba (5) Amahlati (4) Enoch Mgijima* (4) Inxuba Yethemba (4) Dr Beyers Naudé (2) MPUMALANGA Emalahleni* (5) Lekwa* (5) Msukaligwa* (5) City of Mbombela (5) Dipaleseng (4) Thaba Chweu* (4) Govan Mbeki* (2) KWAZULU-NATAL Mpofana* (5) Ulundi (5) uThukela* (5) Ugu (4) Msunduzi* (3) uMkhanyakude* (3) Newcastle (3) FREE STATE Xhariep (5) Letsemeng (5) Mangaung* (5) Tswelopele (5) Matjhabeng (5) Dihlabeng (5) Phumelela (5) Moqhaka (5) Ngwathe (5) Setsoto (5) 21 * Under administration / provincial intervention - Mahikeng, Tswaing, Naledi and Kgetlengrivier were put under administration after 30 June 2021 Number of years with going concern problems MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT The main source of revenue for most municipalities is the Municipalities therefore often depend on the money rates and taxes paid by property owners and consumers they receive from national government in the form of of municipal services (what we call ‘own revenue’).
The an equitable share to stay afloat.

This amounted to problem with own revenue is that municipal consumers R80,26 billion in 2020-21, which is a substantial (including government institutions) are not paying what increase from the previous year’s R67,83 billion.

they owe – this has been a trend for many years and has been made even worse by the economic downturn While the economic downturn does affect revenue caused by the covid-19 pandemic.
This means that while collection, municipalities do not always play their a municipality’s revenue might look healthy on paper, the part either.

Not all revenue owed is billed and poor money does not reach the bank.

debt collection practices are common.


In addition to We estimate that only 36% (R109,64 billion) of own also issued material irregularity notifications where revenue was recoverable, and it took municipalities an municipalities were suffering material financial losses as average of 213 days to collect amounts due to them.

In a result of revenue owed not being billed or debt not highlighting these concerns through audit findings, we 2020-21 alone, municipalities wrote off R41,28 billion being collected.
in debt because it was never paid to them.

Material irregularities: revenue management » Buffalo City (Eastern Cape) did not bill a number of customers for water services provided during 2019-20, resulting in a likely financial loss of R9,6 million.

This was caused by a number of control deficiencies, including a lack of integrated processes and systems between the municipality’s 22 directorates as well as delays in updating systems and registers that linked water meters per property.
The deficiencies were addressed and billing commenced from 2020-21.

The municipal manager also launched an investigation to identify the responsible officials and institute disciplinary action.

» Money owed to the City of Matlosana (North West) by the fresh produce market was not collected due to a lack of internal controls.
Investigations performed by the municipality identified the officials responsible for the transgressions, resulting in disciplinary processes, dismissals and potential legal action to recover the losses.

The likely financial loss since 2017-18 adds up to R43,3 million.
With limited cash in the bank, municipalities prioritise Despite the requirement that creditors be paid within the payment of salaries and councillor remuneration, 30 days, 85% of municipalities took longer than which totalled R113,66 billion in 2021 – 60% of the 30 days to pay their creditors and just over half estimated recoverable own revenue and equitable (51%) took much longer than 90 days to do so.

On share allocation.


They then use what is left to pay average, it took municipalities 240 days to pay their municipal suppliers, including Eskom and the water creditors, compared to 139 days in 2016-17.

The boards, which are essential for the supply of basic late payments affect the cash flow of local government services.
At some municipalities, returns and payments suppliers, which is in sharp contrast with the to the South African Revenue Service are also objectives of stimulating the economy and supporting delayed, and there are even municipalities that do not especially smaller businesses.

Due to these late transfer their employees’ contributions to their pension payments, suppliers and contractors stop delivering to funds.
municipalities, resulting in projects not being completed and performance objectives not being achieved.

MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Eskom and the water boards are in the difficult situation and wasteful expenditure resulting from interest and of being required to continue delivering services despite penalties totalled R1,22 billion.

We issued material non-payment.


The arrears (including interest) payable irregularity notifications where municipalities were to Eskom and the water boards by municipalities suffering material financial losses as a result of such amounted to R25,37 billion and R13,29 billion, interest and penalties.

respectively.
respectively.

The directors’ report included in the Eskom annual are in financial distress, they do collect money for financial statements for the year ended 31 March 2021 electricity services and receive funding from national While we acknowledge that many municipalities states the following: government to subsidise electricity for indigents, but the Eskom accounts remain unpaid because these » The top 20 defaulting municipalities constitute 81% of funds are used for other purposes.
To influence an total gross municipal overdue debt.

improvement in municipal policies, processes and » A total of 43 active payment agreements were in place arrangements with Eskom, we issued 22 material with defaulting municipalities at year-end; however, irregularities on interest payments (financial losses) only 10 of these agreements were being honoured and as a result of non-payment of Eskom accounts.

In the interruption of supply remains a last resort.
Eskom response, some municipalities such as Newcastle has been interdicted from interrupting supply to various (KwaZulu-Natal) and Emthanjeni (Northern Cape) defaulting municipalities.

entered into repayment agreements with Eskom, while » Eskom lost two appeals to interrupt supply to two others such as King Sabata Dalindyebo (Eastern municipalities as the Supreme Court of Appeal concluded Cape) ring-fenced electricity revenue to pay only that the dire situation these municipalities faced obliged Eskom.
Some municipalities undertook projects to the national and provincial governments to intervene, in replace faulty electricity meters, including Letsemeng terms of the Constitution.

(Free State); correct debtors accounts, including Mpofana (KwaZulu-Natal); and review indigent 23 Further adding to these financial woes, is local registers, including Thaba Chweu (Mpumalanga).

government losing billions of rand each year because Some municipalities, such as Madibeng (North West), of interest and penalties.
In 2020-21 alone, the fruitless even settled the whole amount.

Material irregularities: interest and penalties » Ntabankulu (Eastern Cape) did not make payments to a pension fund as instructed by a court judgement, resulting in interest of R5,3 million.

» Matjhabeng (Free State) did not pay over employee pay-as-you-earn deductions within seven days after the end of the month to which they relate, as required by the Income Tax Act, resulting in penalties of R1,9 million and interest of R0,6 million.
Despite the limited money available, we still find that In 2020-21, 64% of municipalities incurred unauthorised municipalities do not diligently and carefully manage expenditure totalling R20,45 billion, of which their funds.

An indicator of the poor management R13,25 billion was for non-cash items (we explain of funds is the R1,96 billion in fruitless and wasteful what this is in the next paragraph).
This means that expenditure incurred by 193 municipalities in 2020-21. municipalities spent money that the council had not Over the term of the previous administration, provided for in the approved budget or the spending did R14,13 billion in expenditure was fruitless and wasteful.

not meet the conditions of a particular grant.


MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Municipalities’ budgets make provision for items that do continue unless municipalities receive additional revenue, not involve actual cash inflow or outflow.

These ‘non- which is highly doubtful given the prevailing economic cash items’ include accounting entries such as reducing conditions and the overall economic outlook.
the value at which assets are reflected in the financial statements (asset impairments) and providing for other Municipalities should ensure that they are able to deliver types of potential financial losses.
This is not actual services based on available resources, but they continue expenditure, but rather an accounting requirement to promise a level of service delivery and projects they that lets municipalities assess the true value of their cannot fund, and to submit budgets to the council that assets (such as equipment or debtors).

Municipalities balance but are effectively based on money that they must correctly budget for these non-cash items to show will not be able to bring in (unfunded budgets).
As a their true financial state and plan for the inevitable result, the spiral of non-delivery continues, the impact of replacement of assets.

The unauthorised expenditure which is felt directly by the communities and businesses related to non-cash items was caused by poor budget the municipalities serve – particularly when it comes to management.

inadequate access to basic services and the lack of economic development.
This also places pressure on By year-end, almost half of all municipalities (47%) the country’s finances overall, which we can ill afford.

owed creditors more money than they had available in Municipalities must be prudent with the limited resources the bank, as municipalities continued to spend money available and make the right choices to prioritise the they did not have.

The total deficit in local government communities they serve.
Most importantly, municipalities amounted to R6,63 billion and the expenditure of need to develop and implement sustainable strategies to 55 municipalities (26%) exceeded their revenue at year- remain financially viable and ensure continuing service end.

As a result, municipalities were using the next year’s delivery.

budget to cover the current year’s expenditure.


This is 24 evident from the fact that current liabilities were more than It is encouraging that when communities raise their 50% of the 2021-22 budget at 29% of municipalities.
concerns about some of the financially distressed This means that the 2021-22 budget will pay for municipalities that struggle to deliver services to residents, spending that had already taken place in 2020-21 national or provincial government intervenes by, among and prior financial years.

In all likelihood, the cycle will others, developing credible financial recovery plans.
In May 2021, the finance minister responded to issues raised by the community and placed Lekwa (Mpumalanga) under intervention through section 139(7) of the Constitution.

A financial recovery plan was prepared by the National Treasury and approved by the finance minister in October 2021.
The detailed plan included timelines for each planned activity, which was divided into three phases: the rescue phase, primarily focusing on restoring the cash position of the municipality; the stabilisation phase, expanding on the financial indicators to be monitored and emphasising key governance and institutional issues to be addressed simultaneously; and the sustainability phase, to ensure that indicators are developed to give effect to the long-term financial sustainability of the municipality.
This approach was designed to ensure that financial recovery is not only achieved but also – more importantly – that progress is institutionalised and sustained within the municipality.

We are already seeing some promising signs that the plan is being implemented and is having a positive impact.

The plan will also go a long way in responding to the material irregularity we raised at this municipality in response to its repeatedly disclaimed opinion.
Such credible strategies should be replicated at other struggling municipalities as part of bigger institutional building processes to ensure that municipalities are properly equipped to sustainably address financial management and governance weaknesses.

The National Treasury and provincial treasuries are well positioned to support municipalities with their financial recovery strategies through capacity-building programmes.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 2.4 Information technology controls Municipalities process critical business transactions and financial information using information systems.
Our role is to assess the control environment supporting these systems to determine if there are any risks of unauthorised access to the systems and data, whether we can rely on the controls for audit purposes, and whether municipalities are deriving value from their investment in information and communication technology.
relating to areas such as information technology governance, system-related controls, information security, disaster recovery, information technology projects, and information technology contracts and licences.

Information technology governance Information technology governance is an element of corporate governance, aimed at improving the overall management of information technology and deriving value from the investment made in technology.
Good governance enables municipalities to manage information technology risks effectively and to ensure that Over the years, we have identified significant control information technology activities are aligned to overall weaknesses in local government’s information systems business objectives.
Status of information technology governance over term of previous administration 39 50% 43 57% 39 62% 20 25% 20 25% 2020-21 9 12% 2019-20 9 14% 2018-19 31% 23 15 24% 25 32 45% 39 53% 18 26% 20 29% 2017-18 2017-18 15 20% 2016-17 20 27% Good Of concern Intervention required Information technology governance improved at 10 municipalities and regressed at four over the term of the previous administration.
Three-quarters of the 79 municipalities where we performed the assessment had ineffective governance processes.

Impact: Ineffective information technology governance processes led to control environments that were vulnerable to abuse or misuse, runaway information technology projects that completely exceeded budget and time targets, and expenditure that was not justifiable, leading to value not being derived from the investments made in technology.
A few municipalities have implemented effective governance processes over time, translating into a good control environment, including the City of Cape Town (Western Cape) and the City of Mbombela (Mpumalanga).

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT System-related controls Many local government systems process critical information and data that should support key business operations and financial management processes.
These systems are used to process large volumes of data which, in principle, should make local government more efficient and economical.
Status of system controls over term of previous administration 48 61% 5 6% 2020-21 26 33% 44 63% 48 64% 25 33% 38 60% 24 38% 2 3% 2019-20 1 2% 2018-19 47 64% 24 34% 23 31% 2 3% 2017-18 4 5% 2016-17 Good Of concern Intervention required System controls were ineffective or inadequate to ensure the integrity of the information processed by the systems of 26 94% of the municipalities we audited.
Impact: Local government, especially metros and large municipalities, continued to spend large sums of money on new and advanced systems to streamline their processes.

But as a result of significant weaknesses in these systems, we had to perform additional procedures around the transactions and data processed by such systems.

In addition, these systems were vulnerable to misuse, abuse and fraud.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Information security Information security measures are critical to ensure that information systems used by local government are not vulnerable to cyberattacks and to prevent staff from performing unauthorised system activities.
Status of information security over term of previous administration 42 53% 26 33% 11 14% 2020-21 43 57% 27 36% 36 57% 21 33% 5 7% 2019-20 6 10% 2018-19 37 53% 23 33% 10 14% 2017-18 44 59% 11 15% 2016-17 19 26% Good Of concern Intervention required Out of 79 municipalities, 68 (86%) had ineffective security controls.

Impact: Hackers were successful in exploiting the security weaknesses at some of the municipalities where we rated information technology security as weak.
This resulted in some key local government services not being available for a prolonged period of time and, in some cases, hackers demanding ransom.

27 Security weaknesses were successfully exploited, demonstrating the need for the new administration to pay special attention to the strengthening of cybersecurity controls » The City of Tshwane (Gauteng) was hacked in December 2019 and the metro was defrauded of R53 million meant for pension contributions.
We notified the municipal manager of this material irregularity – investigations and prosecution are ongoing, with R23,1 million having been recovered to date.

The system weaknesses have also been addressed.

» The City of Johannesburg (Gauteng) was hacked in October 2019 and the hackers demanded a ransom.

This resulted in the metro shutting down several customer-facing systems, including the metro’s website, e-services and billing system as a precautionary measure.
Operations were negatively affected and customers could not transact on e-services or log queries via the call centre or customer service centres.

» Sol Plaatje (Northern Cape) was hacked in 2016-17 and the hackers demanded a ransom.

In 2018-19, hackers again compromised municipal systems, resulting in supplier banking details being changed and R2,7 million being paid into the incorrect bank account.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Information technology projects Information technology projects, especially system implementation projects, are notorious for not meeting time, cost and/or business expectations.

Status of information technology projects in 2020-21 6 40% 5 33% 2020-21 4 27% Good Of concern Intervention required We reviewed 17 information technology implementation or system acquisition projects at 15 municipalities.
At nine municipalities (60%), 11 of the projects (64%) did not meet time, cost, quality or business expectations.

The value of the projects was R1,92 billion.

Impact: Poorly managed projects resulted in municipalities incurring costs that could have been avoided.

28 Projects that were poorly managed » The City of Johannesburg (Gauteng) spent R713 million on a SAP upgrade.
The project was delayed significantly due to the imminent implementation of the Municipal Standard Chart of Accounts and the metro therefore did not derive the intended value from the project.

» The City of uMhlathuze (KwaZulu-Natal) spent R266 million on SAP implementation.

As a result of project delays, the total project budget increased by R184 million to R276 million and the municipality continued to use legacy systems with limited functionality.
This impeded management’s ability to rely on system reports for financial reporting.

» Msunduzi (KwaZulu-Natal) spent R129 million on SAP implementation and experienced project delays.

As a result, the total project budget increased by R189 million to R279 million.

The municipality is re- implementing the SAP system to align configurations according to business requirements, which have changed as a result of the project delays.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Information technology contracts and licences As in all other areas of a municipality’s operations, information technology contracts and licensing agreements are important as they outline the responsibilities of the parties to the contract to protect both the municipality and the supplier and to minimise risk.
Status of information technology contracts and licences in 2020-21 23 79% 21% 6 2020-21 Good Of concern Intervention required We selected 38 contracts to audit at 29 municipalities and found that 10 contracts (26%) at six of them (21%) were not concluded in the best interest of the municipality as the intended value was not received.

Impact: Municipalities paid for software licences they did not need, resulting in expenditure that could have been avoided.
29 Information technology contracts concluded and licences purchased but full benefit was not derived from the money spent » The City of Johannesburg (Gauteng) spent R76 million towards maintenance and support on software licences as part of the SAP upgrade project mentioned earlier.

Because the project was delayed, this could result in some of the licences not being used.

A specialist will further assess the extent of non-usage in the next financial year.
» Nelson Mandela Bay (Eastern Cape) procured R15 million worth of software licences but used only 1 000 of the 4 000 licences purchased.

» The City of Tshwane (Gauteng) accrued R25 million towards maintenance and support for software licences that were not fully utilised as the payments were based on more than the required number of licences.

» The City of Ekurhuleni (Gauteng) started implementing the Oracle HRMS system in 2017.
The metro contracted for software licences valued at R3,5 million, but project delays may result in the licences not being used.

The metro also paid R1,5 million for Payday software licences that were not used.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT 2.5 Service delivery – planning and » set clear performance indicators and targets to reporting Local government’s delivery failures are not surprising if one considers municipalities’ poor financial management and weak financial health and the state of their infrastructure.

But most telling is municipalities’ inability to plan for, and report on, their performance.
At the start of each new administration’s term, municipalities establish an integrated development plan to inform all of their planning, budgeting, management and decision making, which can then be revised annually as required.

Unique to local government is that the public participates in the process as a way to ensure that their needs will be met over the five-year term.
Municipalities are further required to plan in detail measure their performance against the objectives report reliably on whether they have achieved their performance targets.

Quality of performance reports before and after audit – municipalities Before audit After audit 26% 46% 57% 74% 64 180 54% 113 131 With findings With no findings for what they must deliver every year and over the Khai-Ma (Northern Cape), Ubuntu (Northern term of the administration.
They do this in their service Cape), Renosterberg (Northern Cape) and Tswaing delivery and budget implementation plan to ensure (North West) did not prepare performance reports, proper alignment between the integrated development which meant that there was no transparency on, or plan and the budget.

They then account for whether accountability for, their performance.
It further does 30 they managed to achieve their targets in their annual not bode well for service delivery that 74% of the performance report so that the council can call them 244 municipalities that prepared performance reports to account and the public can see progress against submitted poor-quality performance reports for auditing.

the commitments made.


Good planning, in-year performance management, monitoring, and reporting Although there are performance management and that is useful and reliable, are crucial for achieving reporting frameworks that clarify definitions and the service delivery commitments made by the standards for performance information, including administration.
the requirements for integrated structures, systems and processes to manage performance information, Every year, we audit specific service delivery most municipalities did not have adequate systems to information to determine whether the information in the performance reports is useful and reliable enough collate and report on their performance information.

Performance management and reporting requirements to enable the council, the public and other users of were also not properly applied.
the reports to assess the municipality’s performance.

When we raise material findings on municipalities’ The poorly prepared performance reports and performance reports, this means they generally significant activity to make corrections in response struggled to: » align their performance reports to the predetermined objectives to which they had committed in their to the audit also raise questions about the credibility of in-year reporting and the effectiveness of performance reporting throughout the year.
Poor monitoring and corrective action throughout the year integrated development plan and service delivery contribute to municipalities being unable to achieve and budget implementation plan their performance targets or reliably report on their MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 performance.
Councils and oversight bodies (such as municipal public accounts committees) also use in-year reporting for monitoring purposes; without reliable information, their monitoring process will be ineffective.
Opinions on performance reports – overall and breakdown per municipal category Overall Metropolitan municipalities Municipal entities Intermediate cities District municipalities Local municipalities Unqualified Qualified Adverse Disclaimed Movement over administration The most prevalent material findings on these performance reports at municipalities were that the information provided was not reliable (42%).
In other words, either we had proof that the achievement as reported was not correct, or we could not find evidence to support the reported achievements.

This means that fewer achievements than reported could have been attained or that the reported achievements might not have taken place at all.

At 40% of municipalities, the indicators and targets used to plan and report on achievements were not useful.
This means that what was reported had little relevance to the municipalities’ original commitments in their planning documents, and anyone attempting to establish whether the commitments had been honoured would struggle to get a credible answer from the report.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT The main reason for the unreliable performance reports performance indicators for planning and reporting; was that manual processes were used to gather data, however, this is not the case.

This makes it very which are prone to human error that may not be difficult to compare the performance of municipalities detected and corrected in time.
When municipalities do and for national and provincial government to monitor not have credible data and information, it also reduces and report on government programmes.

Although their ability to plan for service delivery, respond to any there is a framework for performance reporting, it challenges that could arise, and to make decisions.
provides some leeway for municipalities to decide For example, if a municipality cannot reliably measure on what they want to measure and how they want to the number of households that has access to sanitation measure it.

facilities, the municipality may end up with either too few or too many sanitation facilities.

This resulted in some municipalities measuring what was done (input) and not what was delivered (output) The indicators of some municipalities did not cover all or what was achieved (outcome).
The Department of communities, which made it easier for them to report Cooperative Governance is responsible for providing good achievements.

For example, Knysna (Western additional guidance and providing support to enable Cape) did not report on access to sanitation for a consistent approach at municipalities, but the households from informal settlements, which make up a department has made little progress in this area.
The significant percentage of households in the municipal National Treasury, being responsible for supporting area.

In such instances, the performance report might metropolitan municipalities, took steps to address this reflect that targets had been achieved when, in reality, problem at metros.

basic services were not provided to all citizens.


Municipalities have similar objectives to be achieved discuss other findings related to service delivery 32 and services to be delivered, such as providing at metros.

We provide insight into how even the water and electricity and maintaining roads.

One well-capacitated metros struggle with planning and would then expect local government to use consistent reporting on service delivery.
Below we look at the impact of this initiative and METROS Public participation in the development of integrated This often leads to dissatisfaction with the level of development plans remains a pivotal aspect of the delivery by metros if they do not provide adequate performance planning process in local government, feedback.
and gives communities an opportunity to influence the strategic course and direction of the municipality to The intent of public participation was not consistently ultimately benefit the people it serves.

These processes realised, however, as some metros did not achieve the took place at metros even when covid-19 restrictions targets set for service delivery indicators.

For example, were in place by, for example, using social media the City of Tshwane (Gauteng) reported a zero platforms.
achievement for three indicators relating to the provision of water, sanitation and construction.

We acknowledge that not all concerns of citizens can be addressed in the integrated development plan – In addition, the reports of civil society organisations metros need to prioritise services based on the available should be a key input to the planning processes of budget.
Community needs do not always fall within the metros to ensure that the needs of communities are mandate of the metro, such as Eskom-related functions.

appropriately responded to.

We also consider these MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 reports for risk assessment purposes and to obtain For example, the City of Cape Town (Western Cape) insights into how communities experience metro has received consistently good audit opinions on service delivery.
Where the reports of civil society performance reporting, yet this does not translate organisations were relevant to indicators contained in into decent service delivery to all residents within the planning documents, we found that most metros met metropolitan area.

these considerations.


This illustrates shortcomings in the planning and initial As briefly mentioned earlier, the National Treasury setting of indicators and targets in the respective reviewed, rationalised and streamlined the planning integrated development plans and service delivery and reporting requirements for metros in response to the and budget implementation plans.
So, for example, challenge of inconsistent planning and reporting and performance reporting indicators might measure a lack of focus on outcomes.

The National Treasury performance based on the number of taps installed, but introduced common indicators on which all metros not whether the taps installed are actually working – should report from 2018-19, but implementation has which is a service delivery matter.

been slow.
been slow.

Only the City of Ekurhuleni (Gauteng) and eThekwini (KwaZulu-Natal) have fully implemented Where metros are getting it right, the impact is also the requirements, while the other six metros are felt by the community.

The City of Ekurhuleni (Gauteng) implementing them in a phased approach.

received a clean audit outcome for the second The benefits of this initiative have not been realised performance planning and reporting.

We audited yet.
We audited yet.

There were still significant inconsistencies, as the indicators relating to water and sanitation and some metros did not include the common indicators in found that the good achievements reported were year in a row, with no material findings on their their planning documents, while others included only reliable and that the metro was responsive to concerns selected indicators.

Some metros also treated and raised by citizens.


To illustrate, the metro prioritised 33 applied outcome indicators differently for planning and problems highlighted during the public participation reporting.

The implementation challenges were mainly processes relating to flooding due to dilapidated due to a lack of supporting systems and processes.
infrastructure, included these in the service delivery and budget implementation plan, and achieved the Some metros did their planning and reporting ‘off the targets in this regard (e.g.

the metro constructed 60 books’.

In other words, they did not include all of their stormwater systems against the target of 28).
Also indicators in their planning documents and annual worth mentioning is that the metro overachieved on performance report, despite reporting to the National the target to resolve 85% of water and sanitation Treasury quarterly and annually on the indicators.

By complaints within 48 hours – 90% of water-related excluding these indicators from the annual performance complaints and 87% of sanitation-related complaints report, they were then not subjected to an audit of their reliability.
This also affected the accountability and were resolved within 48 hours.

monitoring processes of the council, as the decisions Weaknesses in metro performance planning and they made during the year were not based on complete reporting not only affect service delivery and reliable information and reflective of the needs of citizens.
reporting but reduce the council’s ability to monitor and We have observed that there is a correlation between a good performance management system and service delivery but that the correlation weakens if the incorrect performance measures and targets are managed.

make meaningful contributions to the achievement of the promises made to communities in the integrated development plan.

Coordinating departments (treasuries and cooperative governance departments) and national delivery departments (e.g.
the Department of Water and Sanitation) also do not have consistent and reliable information to properly plan, monitor and report on service delivery by metros.

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT 2.6 Service delivery – municipal infrastructure Municipal infrastructure plays a key role in supporting service delivery.
A lack of infrastructure and the inadequate maintenance of infrastructure not only negatively affect service delivery, but often also cause harm to communities and the environment.

projects, they are often underspent, mostly because of poor project management.
For instance, the metros had to return R235,82 million in unspent infrastructure funds (from the urban settlements development grant and the public transport network grant) to the National Treasury, with funding of a further R70,72 million from the mentioned grants possibly having to be returned if the National Treasury does not approve the rollover of these funds.

Money was also not always spent in accordance with We reported on weaknesses in infrastructure projects the grant framework.
and inadequate maintenance and management of infrastructure assets throughout the term of the previous The underspending and inappropriate spending of administration.

We further included these areas in the these grants mean that valuable infrastructure assets work we did as part of the real-time covid-19 audits.

meant for service delivery are not maintained and Yet we continue to identify the same issues year planned projects are not delivered.
This leads to a after year – which is especially concerning as one deterioration in the quality of services delivered to of the key initiatives in the South African Economic citizens, who continue to be frustrated with inadequate Reconstruction and Recovery Plan is aggressive service delivery.

infrastructure investment.


34 In support of this initiative, national government delivery across the project life cycle, focusing on provides infrastructure grants to municipalities to enable 517 key municipal projects, including water and infrastructure development and maintenance.

Although sanitation services, road construction, and recreational these grants are sorely needed to finance infrastructure facilities.

Read on to see what we found.


In our audits, we paid specific attention to infrastructure The planned completion dates were not achieved at some infrastructure projects.

A project at uMkhanyakude (KwaZulu-Natal) for the refurbishment and upgrade of wastewater works, with an original completion date of June 2018, was significantly delayed for more than 41 months.

The project was still incomplete by February 2022.


The delays were caused by inadequate planning, poor milestone monitoring and a lack of qualified project managers to monitor and oversee project implementation.

This meant that 3 280 households did not have access to much-needed sanitation facilities.

MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 We reported non-compliance with supply chain management regulations at some projects.
Inadequate procurement and payment practices, uncompetitive and unfair procurement processes as well as inadequate contract management remained prevalent.

In some instances, payments were approved for work that had not been done, while other payments exceeded the market value of the infrastructure assets.

JB Marks (North West) embarked on a project to construct a flood-line water canal.
The municipality did not exercise adequate care by ensuring that the project was adequately budgeted for and that sufficient funds were available to finance the project to its completion.

This lack of careful planning resulted in the municipality commencing with construction of the flood-line canal and incurring expenditure, only to later abandon the project due to a lack of funds.
During the period that the project was effectively abandoned, the work done up to July 2017 deteriorated to such an extent that all work had to be redone.

We notified the municipal manager that this constitutes a material irregularity.

The lack of maintenance on the flood-line canal after commissioning resulted in continued infiltration of sewage, which adversely affected the environment and the health of citizens.
Municipalities incurred fruitless and wasteful expenditure because they did not pay contractors on time.

At Buffalo City (Eastern Cape), a bulk regional sewage project for Bisho, King William’s Town and Zwelitsha incurred interest of R2,5 million due to unpaid payment certificates.
The metro incurred a further R1,2 million in contractor standing time costs as they submitted drawings and other information late, as well R655 402 because the contractor claimed for abnormal weather conditions without supplying proper proof.

35 The value of infrastructure assets that should be maintained and safeguarded totalled The lack of maintenance by municipalities resulted in lower service level standards, excessive costs for R491,70 billion.
Municipalities need to budget for replacing or upgrading infrastructure and equipment, repairing and maintaining these assets based on and an increasing risk of mechanical breakdowns.

It their annual asset maintenance plan.

The National also posed a risk to the health of citizens and harm to Treasury dictates that municipalities should spend at the environment.
Turn to section 2.7 to see what we least 8% of the value of infrastructure assets on the found in this regard at municipalities with repeatedly repair and maintenance of those assets.

However, disclaimed audit opinions.

the total spending on repairs and maintenance across all municipalities amounted to R16,82 billion, which Citizens have the right to clean drinking water and is only 3% of the value of infrastructure assets.
It is proper sanitation, making the provision of water a particularly concerning that nearly half (40%) of all key service delivery area for municipalities.

Yet this municipalities spent 1% or less on repairing and scarce and valuable resource is not properly managed.

maintaining their infrastructure assets.


An acceptable norm for water distribution losses is between 15% and 30%, with anything above 30% One of the most misstated areas in the financial statements indicating that water infrastructure is not being well was infrastructure assets.

In these cases, municipalities did not have credible and reliable data for managing their managed.

The average water loss across the country above the 30% norm stood at 50%.

Altogether, 84% of infrastructure assets.


This is despite municipalities spending the 114 municipalities that are water services providers more on consultants for asset management services than incurred water distribution losses totalling R9,82 billion.

on any other financial service.


Some municipalities disclosed water losses in kilolitres MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT instead of rand values, while other municipalities did This caused harm to the communities using the water not disclose water losses at all.

on a daily basis and to farmers who used the water for irrigation and their livestock.
The situation at some Apart from scarce water resources potentially being of these municipalities is well known and has been wasted, the water losses add to the significant amounts the subject of investigations by the Human Rights that are payable to the water boards but that cannot Commission and court cases, but little has been done to be billed to consumers to earn revenue.

This contributes rectify the problem.


to ongoing cash flow problems and further delays the provision of quality services to communities.

The likely substantial harm to the general public caused Our environmental inspections of wastewater treatment plants at selected municipalities confirmed that the neglect of municipal infrastructure and ineffective environmental management resulted in polluted water sources, including the underground water.
by the contamination of water sources meets the definition of a material irregularity.

By 15 April 2022, we had issued notifications to the municipal managers responsible for eight of the wastewater treatment plants, with more to follow.

Material irregularities: environmental management » The Rooiwal wastewater treatment works of the City of Tshwane (Gauteng) operated over capacity without the necessary repairs and maintenance being done.
Over a number of years, this resulted in 36 continued spilling and discharge of effluent into the Apies River and Leeuwkraal Dam, which is the extraction point of the Temba water treatment plant.

» Ngaka Modiri Molema (North West) is responsible for the Lichtenburg/Blydeville wastewater treatment works, which was not functional due to poor management, inadequate security (leading to vandalism and theft), and equipment not being repaired and maintained.
This resulted in raw sewage overflowing from manholes before reaching the plant due to blocked pipes.

The wastewater received at the plant was discharged into the nearby wetlands and river without being treated first.

This state of affairs was unchanged from previous site visits and our reporting in 2019 and 2020.

Other plants in the district are in a similar state of disrepair.

METROS Our audits at the eight metros concluded that not all of them had prioritised maintaining their infrastructure assets.
Instead of focusing on preventative maintenance, most metros were reactive, only repairing assets after they had broken down.

» The City of Johannesburg (Gauteng) acknowledged that most of its infrastructure assets have passed their useful life and cannot be salvaged through repairs and maintenance.

» Mangaung (Free State) did not have any maintenance plan in place and only repaired assets when they had already broken down.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 As the City of Cape Town (Western Cape) prioritised preventative maintenance, we did not raise any findings on the maintenance of infrastructure assets at the metro.

Due to financial difficulties, metros underbudgeted for repairs and maintenance, even though most of them had ageing infrastructure.
The City of Tshwane (Gauteng) reprioritised funds to maintain operations instead of using these funds for repairs and maintenance due to liquidity challenges.

In the next section, we provide more information on our environmental findings and material irregularities at municipalities that repeatedly received disclaimed audit opinions.
2.7 Service delivery – impact at disclaimed municipalities In spite of all our messages, as well as initiatives by national and provincial government and even municipalities being placed under administration, little A disclaimed opinion is the worst audit opinion a improvement was evident over the term of the previous municipality can get, as it means that the municipality administration.
Only 18 municipalities improved from could not provide us with evidence for most amounts previously disclaimed opinions, while 17 regressed and disclosures in its financial statements.

We could to disclaimed outcomes over the period.


Eight therefore not express an opinion on the credibility of municipalities that received disclaimed opinions in the these financial statements or determine what had been first year of the previous administration’s term, are still 37 done with the funds the municipality had received disclaimed.

for the year.
for the year.

Municipalities with disclaimed opinions are further typically unable to provide supporting In 2020-21, only Gauteng and the Western Cape documentation for the achievements they report in their did not have municipalities with disclaimed opinions.

performance reports and also do not comply with key Most of the municipalities that repeatedly received legislation.

Disclaimers also mean that residents living in disclaimed opinions are in North West.
these municipal areas are robbed of service delivery.

In 2019-20, our general report and engagements In 2020-21, 25 municipalities received disclaimed specifically focused on the urgent intervention needed audit opinions – almost 10% of all municipalities.

at municipalities with a history of disclaimed opinions.

The audits of five municipalities that had received disclaimed opinions in the past are still outstanding.
We placed the spotlight on our inability to audit how the funds these municipalities received (through the This means that the number of disclaimed municipalities equitable share and conditional grants) were used for 2020-21 could still increase.

because of the limitations we experienced.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Municipalities with disclaimed opinions NORTH WEST • Greater Taung • Kgetlengrivier* • Madibeng* • Mamusa • Maquassi Hills • Naledi* • Ratlou • Ditsobotla* • Ramotshere Moiloa* • Dr Ruth S Mompati* • Lekwa Teemane • Rustenburg NORTHERN CAPE • Phokwane* • Joe Morolong • Renosterberg* • Kai !Garib • !Kheis • Kgatelopele WESTERN CAPE • Beaufort West* 38 LIMPOPO • Mopani • Bela-Bela MPUMALANGA • Dipaleseng • Dr JS Moroka • Lekwa* • Govan Mbeki* • Dr Pixley Ka Isaka Seme KWAZULU-NATAL • uMkhanyakude* • Nquthu* • Inkosi Langalibalele* • Amajuba • uMzinyathi* FREE STATE • Nketoana • Maluti-A-Phofung • Masilonyana LP NW GP MP FS KZN EC NC WC EASTERN CAPE • Chris Hani • Makana* • Sundays River Valley • Walter Sisulu • Ingquza Hill Repeat disclaimer New disclaimer (2020-21) Moved out of disclaimed opinion from previous year Outstanding in 2020-21 Material irregularities *Under administration / provincial intervention as at February 2022 Material irregularities – disclaimers demonstrate that they would be able to ensure that their communities had access to basic services in a financially The high number of municipalities that received sustainable manner.
This constitutes a material irregularity disclaimed opinions compelled us to consider the impact in terms of the Public Audit Act.

of full and proper records not being kept and the lack of credible financial reporting, which constitutes non- By 15 April 2022, we had notified the municipal compliance with the Municipal Finance Management managers of 24 municipalities of this material Act.

These lapses in accountability caused substantial irregularity.
(The map above shows only 22, as harm to most of these municipalities, as their financial the audits of two municipalities that had received position was so poor that they disclosed in their financial disclaimed opinions in 2018-19 and qualified opinions statements that they were uncertain whether they could in 2019-20 and 2020-21 were still outstanding when continue operating.

In other words, they were unable to we issued the notifications.)
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 We gave the municipal managers sufficient time and the material irregularity.

We took further action support to respond to the notifications and, in some and included recommendations in the 2020-21 cases, had to re-issue notifications when the municipal audit reports of 14 municipalities (58%).

These managers changed or municipalities were placed recommendations urged the municipal managers under administration.
The responses we received on to investigate what and who had caused the non- the notifications were telling.

Most of the municipal compliance and to establish credible action plans managers were unable to determine and articulate the to address the lack of full and proper records and root causes of the lack of proper municipal records improve the financial position of the municipality.
If and the financial problems being experienced and/or these recommendations are not implemented within they could not identify appropriate actions with clear the stipulated period, we will issue binding remedial timelines to address these matters.

action.
action.

For the remaining municipalities, we are either awaiting a response to the notification or assessing We assessed that only five (21%) of the municipal responses and determining whether appropriate action managers are taking appropriate action to address is being taken.

Repeatedly disclaimed municipalities In our 2019-20 general report, we told the story of 10 municipalities that had received disclaimed audit opinions to illustrate what went wrong, what it means and the impact it has on residents.
Audit focus: 10 disclaimed municipalities (number of years disclaimed included in brackets) NORTH WEST • Madibeng (5) • Mamusa (5) • Lekwa Teemane (4) • Ramotshere Moiloa (4) NORTHERN CAPE • Joe Morolong (5) • !Kheis (4) 39 NW MP MPUMALANGA • Govan Mbeki (3) FS NC FREE STATE • Maluti-A-Phofung (1) (Has also not submitted financial statements for auditing for 4 years) • Masilonyana (3) (Has also not submitted financial statements for auditing for 2 years) • Tokologo (3) At most of these municipalities, we observed leadership instability (both at political and administrative level), poor oversight by councils, significant financial health problems, protests and strikes, a lack of consequences, and interventions that were not effective.
During our 2020-21 audits, we continued to focus on these 10 municipalities to gather insight into the matters that may be hampering progress and service delivery, and to enhance our messages and improve accountability.

We performed detailed work on specific focus areas, including infrastructure assets, environmental impact, payment profiles, and the use of consultants.

Read on to see what we found.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Infrastructure assets Findings on infrastructure Environmental findings Maintenance of infrastructure Key project visits • • Poor management of wastewater treatment works caused pollution at 7 (70%) Substantial harm to nearby communities – material irregularity notification issued to municipal managers • 8 (80%) did not have maintenance plans • Maintenance spent < 1%, with no impact • • Delays in project completion resulting in overspending on contracts Contractors being paid for substandard work The lack of proper asset registers and records limited maintenance, with most municipalities spending less than our ability to confirm that the values and information 1% of their infrastructure asset value on maintenance.
disclosed on municipal infrastructure assets in the financial statements of most of these municipalities Our audits of key water, sanitation and road were correct.

This is not just a financial statement infrastructure projects funded by conditional grants issue.
It means that these municipalities could not found that half of these municipalities struggled with properly account for the existence and state of their project management, resulting in delays in project 40 infrastructure assets, which should be used to provide completion, overspending on contract amounts, and water, sanitation, electricity, refuse removal and roads contractors being paid for substandard work.

These to communities.


municipalities already struggle financially and cannot afford to waste the limited resources available to Overall, 80% of these municipalities did not have fund basic service delivery initiatives.

Poor project maintenance plans to plan and budget for the routine management was largely due to a lack of technical maintenance of assets, including infrastructure assets.
skills and vacancies in the technical departments and None of the municipalities budgeted for, or spent close in positions responsible for signing off on work done in to, the 8% specified in the National Treasury norms on the project management units.
Infrastructure project shortcomings » A water pipeline between the three towns of Boshof, Dealesville and Hertzogville making up Tokologo (Free State), including their reservoirs, had not been completed for a number of years, despite contractors having been paid approximately R17,5 million (59% of the total contract value of R29,6 million).

Although there was no confirmation of financial loss, the delays led to a water crisis.
The municipality resorted to providing water through boreholes to the affected communities.

» Although the water purification plant and the internal road and stormwater projects for Schweizer-Reneke wards 2, 4 and 6 in Mamusa (North West) were completed in 2020-21, the work was substandard.

At the water purification plant, poor-quality components were used and some components were bypassed (e.g.

the electrical modules that regulate algae filtration were not functioning correctly).
At the roads and stormwater project, damaged paving bricks resulted in stormwater not being directed properly and stormwater drains being blocked by debris, posing a safety hazard to the community.

MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Environmental impact lines to and from the infrastructure and pump stations.
The sites lacked proper access controls, with palisade Our environmental specialist inspected the wastewater fences being stolen or knocked down to gain access to treatment works and landfill sites for which the equipment such as new pumps and motors.

This resulted municipalities are responsible.

When these sites are in new parts having to be purchased to replace stolen not properly operated, there is a significant likelihood ones.
Once sites have been vandalised or are not that both service delivery and the environment could properly maintained, plants are often left non-operational be affected negatively.

This is the case when untreated for years before any repairs or refurbishments are sewage is discharged into water sources or refuse done, which becomes costly because of the additional is illegally dumped or not properly compacted and disrepair caused by neglect.

It also poses serious risks treated at suitable sites.
to the environment and the health and safety of citizens, as untreated wastewater is disposed into the immediate We identified poor or ineffective environmental environment and water sources.

management, limited environmental monitoring and enforcement as well as defective management and The picture at landfill sites is not any better.

delivery of wastewater and solid waste services at 60% Municipalities continued to contravene or fail to comply of the municipalities.
with all the norms and standards of landfill operation, monitoring and rehabilitation.

Uncoordinated and Wastewater treatment and operations were severely illegal refuse dumping was rife, and waste was not affected by serious and ongoing vandalism, including properly treated, compacted and disposed of at the theft of property, equipment, electricity cables and designated landfill sites.
Impact of infrastructure neglect on service delivery 41 Lehurutse wastewater treatment works has been in a state of disrepair since at least 2019, with no action being taken (Ramotshere Moiloa, North West) Phuthaditjhaba wastewater treatment works is non- functional due to serious vandalism, resulting in sewage overflows in the area (Maluti-A-Phofung, Free State) MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Impact of infrastructure neglect on service delivery Sewage overflows at Evander wastewater pump station due to vandalism (Govan Mbeki, Mpumalanga) Mothothlung wastewater treatment works has been completely demolished due to vandalism and theft, but still receives sewage inflows that are discharged without being treated (Madibeng, North West) 42 Raw sewage overflows at Boegoeberg wastewater pump station due to blocked manholes (!Kheis, Northern Cape) Brandfort wastewater treatment works has totally collapsed and been non-functional for years due to vandalism and stolen equipment (Masilonyana, Free State) The National Environmental Management Act and the National Water Act require reasonable measures to be taken to prevent, minimise and rectify pollution.
The substantial harm being caused, or that is likely to be caused, to the general public by pollution meets the definition of a material irregularity.

We notified the municipal manager of Maluti-A-Phofung (Free State) of material irregularities at four of its sites.
In May 2022, we also notified the municipal manager of Ngaka Modiri Molema (North West) – the district municipality responsible for the maintenance and operation of wastewater treatment sites – of material irregularities at three sites in Ramotshere Moiloa.

We are further considering material irregularities for the wastewater treatment sites of the other repeatedly disclaimed municipalities.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 The Department of Water and Sanitation should play its part in the accountability ecosystem by intervening urgently at municipalities where water services are in a state of total collapse.
Payment profiles In our 2019-20 general report, we shared our concern that disclaimed municipalities receive funding from national government through an equitable share and conditional grants, but that the lack of proper records makes it difficult to confirm what had been done with this money between receipt and what was left in the bank account at year-end, as illustrated below.
2019-20 VS Grant funding received for the year by 22 disclaimed municipalities VS R6,49 billion Total bank balance at year-end for 22 disclaimed municipalities R0,98 billion Total equitable share R4,14 billion Total conditional grants R2,35 billion 2020-21 Grant funding received for the year by 18 disclaimed municipalities VS R8,46 billion Total equitable share R5,37 billion Total conditional grants R3,09 billion ?

?
?

Total bank balance at year-end for 18 disclaimed municipalities R1,17 billion 43 To determine what happened to this money, we detect payments of which municipalities may be performed payment profile data analytics by matching unaware or which have not been recorded in the the actual payments in the bank statements to the payments recorded in the municipality’s financial system general ledger.
In such cases, fraudulent activities could go undetected and funds meant for service (which is the basis for the financial statements).

delivery could be misappropriated without being picked up.

We reported this significant risk to the Six municipalities did not use unique identifiers such municipal managers and will continue to follow up on as payment descriptions and descriptive references whether it has been addressed.
We also requested for bank payments to enable meaningful matching the Financial Intelligence Centre to obtain information and analysis between the bank statements and the on the banking transactions of these municipalities, financial system.

This will make it difficult for these which will enable us to analyse the payments to municipalities to perform bank reconciliations.

Bank identify any suspicious transactions.


We are expecting reconciliations are an important internal control to this information in June 2022.

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT We did further analysis at four municipalities and Conclusion could trace between 67% and 89% of the expenditure recorded on the financial system to bank statements.
The R6,03 billion spent by these municipalities was used for employee costs, bulk purchases, payments to service providers as well as statutory and other payments.

Payments to service providers pose the biggest risk.
For example, we could not confirm whether goods and services were received by Madibeng (North West) for all payments to suppliers, as the municipality could not It is clear from our audits that these repeatedly disclaimed municipalities are not fulfilling their mandate of ensuring quality service delivery to communities.

The challenges faced by some municipalities are significant due to the long period of neglect and lack of action.
provide evidence of basic controls and records (such as The national departments that provide grant funding for delivery notes or invoices signed by delegated officials) infrastructure projects should improve their assessments to indicate that services had, in fact, been provided.
This of the ability of these municipalities to execute their could mean that payments were made for goods and planned projects – not only based on the business plans services not received, which we will be considering as submitted but also their history of project failures, our potential material irregularities.

Use of consultants findings on infrastructure and the underlying root causes of the problems experienced.
Improved monitoring by these departments to ensure strict adherence to the grant conditions and swift action (including withholding Despite our persistent messages on the ineffective use funds) in response to non-compliance is key to ensuring of consultants, various weaknesses in the appointment that grants are used for their intended purpose.

The process of consultants were common.


These included overreliance on external consultants such as engineers a lack of a proper needs or gap analysis before for monitoring and reporting on the quality and progress 44 consultants were appointed, the absence of long- of key infrastructure projects should also be addressed.
term plans to reduce the overreliance on consultants, This can be done by capacitating municipalities and the consultants building a system of dependency, and monitoring units of national departments with the required consultants’ work not being incorporated accurately into technical skills and competencies to improve monitoring the financial statements.

In some instances, little benefit and instil effective project management disciplines.

was derived from the appointment of consultants.


For example, no or limited supporting documentation could Where municipalities are unable to address their be made available for work done by consultants on the challenges without outside intervention, such as dealing financial statements of Masilonyana (Free State).
with their financial distress, coordinating departments Prior year limitations were inherited from previously These departments, including provincial treasuries and used consultants, making it difficult for newly appointed consultants to address these limitations if proper record cooperative governance departments, should help municipalities to develop and implement comprehensive management was not in place throughout the year.
At financial recovery plans to address their cash flow will need to provide support and/or intervention.

some municipalities, consultants were appointed too challenges.

late to make any meaningful contribution.

Overall, municipalities did not have plans in place to use Councils should also intensify the level of support consultants effectively and to transfer skills, which offered to municipal leadership so that a proper tone is ultimately increased their dependency on consultants.

set from the top.
set from the top.

MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 2.8 Procurement and payment transgressions and risks case with the information we had previously provided on national and provincial government.

Fair and competitive procurement processes enable local government to get the best value for the limited funds available and give suppliers fair and equitable access to government business.
When work has been awarded to suppliers, the contracts must be actively managed to ensure that these suppliers deliver at the right time, price and quality before any payments are made.

Such requirements are not only standard financial management practices, they are also included in the Municipal Finance Management Act – which makes municipal managers responsible for ensuring that the required processes and controls are implemented.
In local government, failures in these areas often affect communities directly if contractors are not performing, poor-quality goods are provided, and money is lost through overpricing or paying for goods or services not Our real-time covid-19 audits were hampered by payment and procurement documentation not being provided for auditing.

This is a recurring theme in local government, where our ability to audit is often limited by claims that documents are missing or by a lack of response to our requests.
In 2020-21, we were unable to audit R1,22 billion worth of contracts because of limitations on the audit of awards selected for testing (meaning that the relevant information was missing or incomplete).

Our findings and recommendations on procurement and payments and the four material irregularities we issued where material financial losses were suffered as a result are still being addressed by the affected municipalities.

Status of compliance with supply chain management received.
The procurement and payment process is also legislation where the risk of fraud is highest.

To mitigate the risks arising from public procurement, we pay particular attention in our audits to procurement 26 61 145 and contract management.
The risk of fraud and the With no findings With findings With material findings mismanagement of funds was significantly heightened Movement over administration 45 11% 26% 63% 47 29 under the covid-19 conditions and, as a result, this was a key focus of our real-time covid-19 audits.

Compliance with supply chain management legislation improved slightly over the term of the previous Our key findings from the covid-19 audits included administration, but remains low.
deficiencies in the procurement and contract management processes for personal protective equipment and infrastructure projects, as well as inadequate controls to ensure that payments were made only for goods and services that were delivered at the right time, price and quality.

We were particularly concerned about unfairness in the awarding of Uncompetitive and unfair procurement processes and inadequate contract management were still common.
We reported findings (54% of which were material) on uncompetitive and unfair procurement processes at 79% of municipalities and contract management findings (35% of which were material) at 42% of government business and that sufficient care was not municipalities.

taken to protect against overpricing, as we identified a number of instances where municipalities paid excessive At some municipalities, uncompetitive and unfair prices for goods and services.
We also identified a procurement processes resulted in (or is likely to number of fraud indicators.

We shared our data on potential fraud in local government with the Fusion Centre in October 2021 result in) financial losses as the goods and services procured could have been obtained at a lower price or a contractor was appointed who could not deliver.

We notified the municipal managers of these material for further analyses and steps to be taken – as was the irregularities.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT Material irregularities: procurement » Dr Ruth Segomotsi Mompati (North West) awarded a tender in the 2019-20 financial year for value- added tax recovery services, according to which a percentage-based commission fee would be paid to the supplier for value-added tax refunds.
A bidder that quoted a commission fee percentage that was lower than that of the winning supplier, was incorrectly disqualified at the functionality stage, despite having submitted the required information.

The municipality would have paid a lower commission fee and would thus have saved an estimated R2 million for the total value-added tax refund had the functionality criteria been correctly applied during the bidding process.

The contract was cancelled after the court determined it to be invalid.
» eThekwini (KwaZulu-Natal) procured face masks at prices higher than those recommended by the National Treasury.

This procurement at excessive prices resulted in financial losses for the municipality.

The municipality is investigating the matter.

The aim of preferential procurement legislation is to Legislation further prohibits awarding contracts to, and support socio-economic transformation.
The public accepting quotations from, employees, councillors or sector should lead by example to achieve this goal, other state officials, or entities owned or managed but we again found that some municipalities are by them, if they are in the service of the municipality failing in this area.

At 59 municipalities (25%), or any other state institution.

This is intended to the preference point system was not applied or prevent conflicts of interest.

We identified these 46 was applied incorrectly.


Municipalities must also prohibited awards throughout the term of the previous procure certain commodities from local producers.

administration.
administration.

The value of awards to employees Municipalities failed in this area as well, as 82 of and councillors was R10 million (39 municipalities) in the 160 municipalities (51%) at which we audited 2016-17, R14 million (34 municipalities) in 2019-20, local content did not comply with the regulation on and R27 million (28 municipalities) in 2020-21. promoting local producers for awards amounting to The awards to other state officials totalled R790 million.
Prohibited awards R1 906 million (140 municipalities) in 2016-17, R3 709 million (116 municipalities) in 2019-20, and R254 million (90 municipalities) in 2020-21.

At Makhado (Limpopo), catering services (R43 471) and information services (R978 000) were awarded to suppliers in which councillors had an interest.

Awards to close family members of employees and We further remain concerned about widespread councillors are not prohibited.
However, legislation shortcomings such as the overpayment of suppliers; requires the municipality to disclose any such awards payments to incorrect suppliers or beneficiaries; of more than R2 000 in its financial statements for the contractor payments for incomplete or non-existent sake of transparency, as such awards could create construction; the extension of construction contracts, conflicts of interest for employees or councillors.
The resulting in higher costs; and payments for services value of awards to close family members was not rendered.

In many cases, this resulted in material R201 million (68 municipalities).

At 22 municipalities, irregularities due to the financial losses incurred.

the awards to close family members were not disclosed in the financial statements as required – the value of these undisclosed awards was R13 million.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 Material irregularities: payments » Nelson Mandela Bay (Eastern Cape) paid two contractors R20,2 million in December 2018 for the provision of stormwater drain cleaning services that were not rendered.

The Hawks are investigating the matter.

» OR Tambo (Eastern Cape) paid R57 million to Amatola Water (an implementing agent for water projects) for goods and services that had not been delivered.
Disciplinary processes are taking place and the Hawks are investigating the matter.

» The City of Tshwane (Gauteng) paid salaries of R88,4 million to employees between November 2019 and October 2020 without any work being allocated to these employees.

Non-compliance with supply chain management the total amount could be even higher, as 31% of legislation remained the biggest contributor to the municipalities received qualified audit opinions because irregular expenditure incurred.
the amount they disclosed was incomplete and/or they In 2020-21, R21,10 billion of the irregular expenditure was not known.

As mentioned earlier in the report, incurred at local government level was due to non- we could also not audit contracts worth R1,22 billion compliance with supply chain legislation.

However, because of missing or incomplete information.
had incurred irregular expenditure but the full amount Irregular expenditure over term of previous administration R32,95 bn 47 R29,73 bn R24,48 bn R26,23 bn R21,95 bn 2016-17 2017-18 2018-19 2019-20 2020-21 The total irregular expenditure fluctuated over the term of the previous administration.

Irregular expenditure represented 5% of the R459 billion expenditure budget managed by municipalities in 2020-21.
Accurately disclosing irregular expenditure is an important step in the accountability chain, as we explain in section 3.

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT 2.9 Accountability and consequences did not take sufficient steps to recover, write off, approve or condone such expenditure.
In total, 51% of municipalities did not investigate the previous Over the past few years, we have made continued year’s irregular expenditure, 42% did not do so for calls for accountability.

But what does this actually unauthorised expenditure, and 41% failed to do so for mean?

There are two components to accountability: fruitless and wasteful expenditure.

» Firstly, those who take actions or make decisions must take responsibility for these actions and decisions.
As a result, the year-end balances of these types of unwanted expenditure continue to grow.

At the 2020-21 » Secondly, those who do wrong (transgress), do year-end, the balance of irregular expenditure that had nothing (fail to act) or perform poorly should face accumulated over many years and had not been dealt consequences.
with totalled R119,07 billion, unauthorised expenditure stood at R86,46 billion, while fruitless and wasteful Instituting consequences against officials responsible expenditure amounted to R11,04 billion.

for non-compliance helps municipalities to recover losses incurred by those officials and deter other The Municipal Finance Management Act requires officials from contravening legislation.
In this way, councils to objectively and diligently investigate such municipalities demonstrate their commitment to prudent expenditure.

Neither councils (through their municipal financial management practices.

However, 60% public accounts committees) nor treasuries should write of municipalities did not comply with legislation on off or condone such expenditure without making sure effecting consequences.
At 54% of municipalities, the that no losses had been suffered or that any losses non-compliance was material.

suffered cannot be recovered.

48 The most common findings involved irregular, Taking irregular expenditure as an example, very little unauthorised, and fruitless and wasteful expenditure not had been done by the 2020-21 year-end about the being investigated.

This means that the municipalities 2019-20 year-end balance of R110,18 billion.
How councils dealt with prior year irregular expenditure R119,07 bn 2020-21 R110,18 bn 2019-20 R68,85 bn 2016-17 Closing balance of irregular expenditure still high <1% <1% 11% 89% R0,01 bn Money recovered or in process of recovery R0,01 bn Condoned R12,21 bn Written off R97,96 bn Not dealt with MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 The first step the council must take is to investigate One would also expect accountability to come into the non-compliance – why did it happen, who is play where there have been allegations of financial responsible, was money lost, and – if money was lost and supply chain misconduct and fraud.
We audited – can that money be recovered?

These investigations 78 municipalities to see whether this was the case and were not performed at more than half of the found the following: municipalities.

Where action was taken, it was mostly to write off the irregular expenditure.

This means that » At 51% of municipalities, investigations took longer the council considered the matter to be resolved, yet than three months to complete.
we identified instances where these investigations were » At 14% of municipalities, allegations were not not appropriately performed.

Investigations also very investigated.

seldom found any officials liable.


If these matters continue to be ignored or such expenditure is written off without proper consideration, the accountability process envisaged in the Municipal Finance Management Act (through identifying and disclosing irregular, unauthorised, and fruitless and wasteful expenditure) is not functioning as intended.

» At 5% of municipalities, sanctions were not imposed or recommendations were not implemented based on completed investigations.
Every year, we also report indicators of possible fraud or improper conduct in supply chain management processes and recommend that management further investigate these matters.

In 2019-20, we reported such indicators at 128 municipalities for follow-up.
Status of investigations into fraud or improper conduct in supply chain management processes 49 45 (35%) municipalities investigated all of the findings reported 16 (13%) municipalities investigated some of the findings reported 67 (52%) municipalities investigated none of the findings reported Of the 61 municipalities that investigated some or all findings, 39 (64%) satisfactorily resolved these investigations, while 36% did not (e.g.
the investigation recommended that contracts in which employees failed to declare their interest be cancelled, but the municipality did not do so) 50 (51%) 33 (59%) 25 (57%) 10 (10%) 38 (39%) 3 (5%) 20 (36%) 5 (11%) 14 (32%) 9 (100%) 4 (100%) Supplier submitted false declaration of interest (98) Employee failed to disclose interest in supplier (56) Other supply chain management allegations (44) Payment despite of poor delivery by supplier (9) Payment to possible fictitious supplier (4) All investigated Some investigated None investigated MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT There is a definite need for these investigations to be to implement adequate consequences swiftly, bravely finalised faster so that potential fraudulent activities can and consistently.
be stopped and the necessary criminal investigations can start – to ultimately prevent further transgressions When it comes to irregularities, we play an integral and recover any financial losses.
part in the accountability process – even more so in recent years through the powers granted to us as part The lack of consequences remains one of the key root of our expanded mandate and the identification of causes of municipalities’ poor audit outcomes (49%) material irregularities (which we commonly refer to and we continue to advocate for municipal leadership as ‘MIs’).

Status of material irregularity process In our 2019-20 general report, we reported that we on information subsequently received.
This brings us had identified and notified municipal managers of to a total of 185 active MIs.

We only recently notified 96 MIs.

By 15 April 2022 (which was the cut-off date accounting officers and authorities of 35 of these MIs, for MIs to be included in this report), we had notified and by 15 April 2022 their responses were not yet due.
municipal managers and the board of a municipal At that date, we were also still evaluating the responses entity of a further 91 MIs and closed two MIs based to 39 of the newly identified MIs.
Status of remaining 111 material irregularities 50 Resolved MI 5% 6 Appropriate action being taken to resolve MI 69% 76 Appropriate action not taken – invoked our powers 26% 29 The six resolved MIs dealt with financial losses incurred or money that would have been lost if Some MIs can be resolved within a short period, but many MIs require a municipality to correct deep-rooted action had not been taken.

It was resolved through issues, which will obviously take longer to address.
improvements in systems, payment processes and For example, the MIs issued to repeatedly disclaimed payment arrangements, which resulted in the losses, municipalities require the long-standing problems of or any further losses, being prevented.

The details of poor record keeping and internal controls, as well as these MIs are included in section 2.1 as examples of the resultant financial instability, to be addressed.

The the impact achieved through the MI process.


Appropriate action means that we have assessed the steps being taken to resolve the MI and are infrastructure neglect at some municipalities can also require multiple financial years to correct, depending on the availability of funds.

In addition, the resolution of some MIs is dependent on the completion of comfortable that these, when fully implemented, will investigations and processes by external parties, further result in the MI being resolved.
An MI is only resolved adding to the timelines.

after all steps have been taken to recover financial losses or to recover from substantial harm, when further The average ‘age’ of the MIs that are in the process of losses and harm are prevented through strengthening being resolved is 10 months (from date of notification).
internal controls, when there are consequences for the transgressions (which include disciplinary processes) The ageing of MIs is influenced by delays in and when, if applicable, the matter has been handed implementing the necessary action – even just over to a law-enforcement agency.

responding to the notifications.

Where we assessed MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 such delays to be reasonable (e.g.
as a result of covid-19, instability or budgetary restrictions), we did not invoke our powers.

However, this has again highlighted the many challenges in local government – some of which we describe below.

Instability at municipal manager level is having a significant impact.

After we have issued an MI notification, we often have to re-issue the notification as the original person is no longer in the position or an administrator has taken over the municipal manager role.
» We notified the municipal manager of Mangaung (Free State) of an MI on 8 March 2021.

He was suspended on 21 May 2021 and then resigned on 31 July 2021.

From 21 May 2021 to date, four different officials have acted in the position of municipal manager.

» We issued eight MIs at uMkhanyakude (KwaZulu-Natal), to which the municipal manager responded in June 2021.

This municipal manager was suspended in July 2021 and an acting municipal manager was appointed.
In September 2021, we were informed that the original municipal manager had returned to his position as the correct process had not been followed to suspend him.

Then in October 2021, we were informed that the suspension would be upheld and that we should work with the acting municipal manager.

In addition, the municipality was placed under administration and the administrator started responding to the MIs as well.
In December 2021, the term of the acting municipal manager ended and a new person was appointed in an acting capacity.

The new acting municipal manager had no knowledge of the MIs and we had to brief him and allow for additional time to resolve the MIs to be procedurally fair.

All of this is significantly delaying the resolution of the multiple MIs at the municipality.
The recovery of financial losses and the completion of disciplinary processes are dependent on the timeous completion of investigations – the longer it takes, the more unlikely it becomes that these processes will be successful.

51 » The recovery of money lost by municipalities through investing in VBS Mutual Bank in 2018 is being hampered by the liquidation of the bank.
Payouts from the liquidators of the bank only commenced in February 2022 and it is clear that not all money will be recovered from the liquidation process.

The potential recovery of the remainder of the losses from liable officials is being delayed by Hawks investigations not having been concluded yet and liable officials resigning from municipalities, putting them out of reach of disciplinary processes.
» The payment system of the City of Tshwane (Gauteng) was hacked, resulting in payments to an incorrect beneficiary.

The matter was reported to the Hawks in September 2019, but the investigation is still in progress, with the municipal manager awaiting the outcome before taking action against the implicated officials.

As mentioned earlier, the council is responsible for investigating irregularities and losses and for recommending further actions.
Councils not completing investigations or timeously making final decisions delay the implementation of actions by municipal managers.

At Matjhabeng and Setsoto (Free State), investigations by the municipal public accounts committees into financial losses have been delayed as the committees need to be reconstituted after new councils were elected in 2021.
MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT We are fully committed to implementing the enhanced In 29 cases where municipal managers did not powers given to our office – without fear, favour appropriately address the MIs we reported to them, or prejudice.
If accounting officers and authorities, we used our expanded mandate by including supported by their political leadership, fulfil their recommendations in the audit reports or the auditor- legislated responsibilities and commit to taking swift general invoked her additional powers of referral and action when we notify them of an MI, there is no need remedial action.

The municipalities where we took for us to use our remedial and referral powers.
Yet we further action (as detailed in the following graphic), are do not hesitate to use these powers when accounting also where we typically experience a slow response to officers or authorities do not deal with MIs with the our findings and to improving the control environment.

required seriousness.
Further action taken Recommendations in audit report as accounting officer/ authority took little or no action to address MI Remedial action issued as our recommendations were not implemented Referred matter to public bodies for further investigation Maluti-A-Phofung (FS) Ngaka Modiri Molema (NW) – 3 Matjhabeng (FS) 52 Masilonyana (FS) Tokologo (FS) City of Tshwane (GP) – 3 Msunduzi (KZN) Govan Mbeki (MP) Kai !Garib (NC) Joe Morolong (NC) City of Matlosana (NW) – 2 JB Marks (NW) Madibeng (NW) Ngaka Modiri Molema (NW) – 3 Ditsobotla (NW) Dr Ruth Segomotsi Mompati (NW) Kgetlengrivier (NW) Mahikeng (NW) Mamusa (NW) Ramotshere Moiloa (NW) Lekwa Teemane (NW) Naledi (NW) Our recommendations and remedial actions deal with recovery, prevention, and consequences MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 The circumstances of the referral we made to a public body are as follows: Matjhabeng (Free State) paid an estimated R7,2 million between April 2017 and June 2019 for the construction of an attenuation (flood-protection) dam on the Nyakallong stormwater system after it had been certified as complete.
However, a site visit confirmed that the attenuation dam had not been constructed, resulting in overpayments on the project.

The municipal manager could not provide sufficient and appropriate evidence of actions taken in response to being notified of the MI.

The actions taken were also considered inadequate.

As a result, we referred the MI to the Hawks for investigation in June 2021.

The investigation is currently in progress.


The recommendations we include in the audit reports are not the normal recommendations we provide as part of our audits but instead deal with the actions a municipal manager should take to resolve a specific MI.

It typically deals with the following: » Recovery: Steps to be taken to recover financial losses or to recover from substantial harm.

» Prevention: Steps to be taken to strengthen internal controls to prevent further losses and harm.
» Consequences: Steps to be taken to effect consequences for the transgressions.

This includes disciplinary processes and, if applicable, handing over the matter to a law-enforcement agency.

We included recommendations on 25 MIs in the audit reports of 20 municipalities.

Most of the recommendations dealt with the MIs we raised because of repeated disclaimers.

Section 2.7 includes the information on these MIs and the recommendations we made.
Below is an example of the recommendations we provided for another type of MI.

53 The City of Tshwane (Gauteng) overpaid three suppliers of fuel due to a lack of an effective internal control system relating to expenditure management.

Appropriate actions were not taken to resolve the MI.

We notified the municipal manager of the following recommendations, which should be implemented by August 2022: • The investigation that commenced must be finalised.
• The financial losses should be recovered from the suppliers.

• Disciplinary or, if appropriate, criminal proceedings should commence against all responsible officials.

MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT If the recommendations are not implemented, we include remedial actions that cover the same areas of recovery, prevention and consequences.
If the remedial actions are not implemented and the MI involves a financial loss, we can move towards the certificate of debt stage.

We issued remedial action for three of the MIs at Ngaka Modiri Molema (North West); below we share one such example.

The municipality failed to monitor a contract for construction work to the municipal office building and gate house, resulting in a contract extension that included items already paid for as part of the original contract.
The original contract was awarded in 2012-13 and said extension was done in March 2019.

The municipal manager failed to make progress with the implementation of the recommendations and the auditor-general approved the issuing of a directive for the financial loss to be quantified and recovered and for remedial action to ensure that consequences are effected.
The municipality has made some progress to finalise an investigation into this matter to recover the loss from the responsible parties and to take disciplinary action.

We gave the municipal manager until 1 August 2022 to fully implement the remedial action.

Process from identifying a material irregularity to issuing a certificate of debt – where are we now with Ngaka Modiri Molema?
Identify MI during audit 54 Conclude based on municipal manager response if appropriate action is taken or planned Follow up whether recommendations have been implemented; if not, issue remedial action to municipal manager that must be implemented by specific date Notify municipal manager of MI If actions were not appropriate, include recommendations in audit report on how MI should be addressed by specific date Follow up whether remedial actions have been implemented; if not, issue notice of intention to issue certificate of debt to municipal manager We are here MI advisory committee meets to hear oral representation and recommend course of action to auditor-general 6 7 8 9 Conclude based on written submission whether certificate of debt process should continue If it continues, request municipal manager to give oral representation at MI advisory committee on reasons not to issue certificate of debt Auditor-general issues certificate of debt to municipal manager MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 02 We have not issued any certificates of debt to date.
A culture of responsiveness, consequences, good However, if the three MIs of Ngaka Modiri Molema governance and accountability is not just our goal; it is currently in the remedial phase are not appropriately a shared vision for all involved in local government.

dealt with, the auditor-general can invoke the certificate of debt process.
Therefore, we urge all role players in local government to play their part in the accountability ecosystem by also supporting, monitoring and overseeing the resolution of MIs.

When the auditor- general invokes her powers of referral and remedial action (and the issuing of certificates of debt in future), it not only reflects poorly on the municipal manager, but also means that the whole accountability value chain had failed, including the mayor, council, provincial leadership and oversight.
55 MFMA 2020-21 Consolidated general report on local government audit outcomesSTATE OF LOCAL GOVERNMENT SECTION 03 ACTIVATING THE ACCOUNTABILITY ECOSYSTEM – A CALL TO ACTION The poor audit outcomes and inadequate service delivery by many municipalities during the term of the previous administration were the result of a pattern of behaviour and conduct by leaders and officials that led to a local government culture in which performance, accountability, transparency and integrity were not prevalent.
Local government now has new political leaders, We particularly emphasised that the direction, elected by communities to represent their interests supervision and review role of senior management and address their pressing need for services, must be strengthened – in our assessment, the senior 56 economic opportunities, and a safe and healthy living management of only 11% of municipalities was environment.

There is renewed hope in cities and towns fully effective.
More municipalities regressed than across the country that have been let down by their improved in this area over the term of the previous municipalities in the past.

It is now time to activate the administration.

accountability ecosystem to shift the culture in local government through courageous, ethical, accountable, Vacancies and instability at senior management level capable and citizen-centric leadership.
Leadership, decision makers and support at municipal level The municipal managers and boards of municipal had an impact on the effectiveness of management functions.

Instability at municipal manager level was also common, which affected decision making; the completion of action plans, projects and initiatives; and consequence management.

entities know what must be done – they have received Internal audit units should provide independent our messages and recommendations for many years.
assurance to the municipal managers on the We gave them reports, notified them of material implementation of controls and the mitigation of irregularities and regularly engaged with them to risk.

The units work under the oversight of the audit share risks to be addressed and good controls to be committee, which includes independent experts who implemented.

Yet, a slow – or even no – response can advise the municipal manager and council.
In our by municipal managers and senior management assessment, internal audit units and audit committees to our recommendations on improving controls and had been established and were operational, and addressing risk areas was the most common root cause the vast majority performed all the functions required of poor audit outcomes during the term of the previous by legislation, including evaluating the reliability administration.
of financial and performance information and MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 03 compliance with legislation.

However, the audit and performance management is not fully realised outcomes showed that the work of these governance – their influence will always depend on the internal structures had little impact, as the quality of the control environment created by the municipal manager financial statements and performance reports we and senior management.
received for auditing remained poor.

We assessed that the assurance these structures provided was Political instability and ineffective governance sufficient at just over a third of municipalities for processes at council level were apparent throughout internal audit units and 42% for audit committees, but the term of the previous administration.
This also the value that can be derived from their independent affected the establishment and operation of municipal assurance has not materialised at the remaining public accounts committees.

These committees were municipalities.

The question is – why?


introduced as a committee of the council to evaluate the extent to which our recommendations and those In our assessment, the internal audit units at half (50%) of the audit committee have been implemented as of the municipalities were at least having some impact well as to promote good governance, transparency on financial and performance management and and accountability in how municipal resources are compliance with legislation.

At the other half, they had used.


These committees also play a key role in little to no impact, mainly (35%) because management investigating irregular, unauthorised, and fruitless and was just not implementing their recommendations.

The wasteful expenditure and in instituting consequences internal auditors experienced the same frustrations we for wrongdoing.

There is tremendous potential for have as external auditors in this regard.
The remainder improved audit outcomes and accountability processes of the internal audit units were not adequately if these committees are functioning well and are capacitated and/or not effective.

Audit committees supported by the council.


Unfortunately, this potential were slightly more effective, with 58% having some was not realised during the term of the previous impact and 30% experiencing that management did administration – this is most apparent in the area of 57 not implement their recommendations.

consequence management.


Internal audit units and audit committees are a big investment for municipalities – the professionals A call to action employed as internal auditors or who serve as members of the committees are expensive.
In our experience, the Our first call to action in this report is to the newly formed councils, to the speakers and mayors, and vast majority of these professionals are competent and to the members of the municipal public account committed to serving local government with their skills.

committees.
We encourage them to pay attention to the It is regrettable that the value they can bring to financial following during their term: Focus areas for new administration 1 2 3 4 Enable and insist on credible financial and performance reports for in-year monitoring and decision making as well as transparency and accountability on the finances and performance of the municipality Stabilise and capacitate the administration – recruit, retain and continually develop appropriately skilled and experienced officials in key positions Maintain a robust financial management culture which includes ensuring effective revenue collection, prudent spending, and prevention and speedy recovery of financial loss and wastage Lead by example and ensure that consequences for accountability failures are effected swiftly, bravely and consistently MFMA 2020-21 Consolidated general report on local government audit outcomesACTIVATING THE ACCOUNTABILITY ECOSYSTEM – A CALL TO ACTION The support of the mayor, council and municipal The role of the coordinating ministries is to monitor, public account committees is also sought for the swift support and strengthen the capacity of municipalities, resolution of material irregularities to the betterment of which includes intervening and enforcing legislative the municipality and the community it serves.
requirements.

The members of the executive council responsible for local government also have a legal In particular, we recommend that the municipal obligation to report to the provincial legislature on manager report to the council on a quarterly basis on whether municipalities have adequately addressed our material irregularities identified and the progress made audit report findings (through audit action plans) and on in resolving them.
The municipal manager should be the performance of municipalities, including remedial held to account for any unreasonable delays.

Support action to address underperformance.


should be provided where the council has a role to play in the resolution process, such as through the We shared our specific findings on the reporting by timeous finalisation of investigations into irregular and members of the executive council and the effectiveness fruitless and wasteful expenditure by the municipal of provincial support and intervention.
Overall, we public account committees as well as investigations and have seen that these role players in the accountability disciplinary processes for financial misconduct by the ecosystem can perform better and in a more municipal manager or senior management.

coordinated manner, and can also have a greater Our second call to action is for the larger accountability ecosystem to be fully activated to support and impact on local government.
To help them achieve this, our overall recommendations include the following: capacitate councils and municipal administrations to implement these recommendations – and, where » The members of the executive council for local government must strengthen the processes for a municipality fails, to intervene with a greater rate compiling reports to the provincial legislatures so 58 of success.
Intergovernmental relationships need that these effectively address the challenges at strengthening to ensure appropriate, swift and impactful municipalities.

These reports should cover both interventions and support.
audit action plans as required by section 131 of the Municipal Finance Management Act (so-called Over the years, and again leading up to the tabling of MFMA section 131 reports) and remedial action to this report, we have had multiple engagements with the address non-performance in terms of section 47 of the provincial leadership – the premier and members of the Municipal Systems Act (so-called MSA section 47 executive council for local government and finance.

The reports).
The reports).

To improve the quality of these reports, they state of local government is different in each province should be based on a thorough diagnostic analysis and each province faces different challenges.

Our with an annual reflection on prior year actions.

recommendations to them and the commitments they Provincial legislatures must strengthen the process of make therefore differ, as can be seen when paging through the provincial stories in the next section.
engaging on these reports, including formulating and following up on resolutions.
This year, we specifically focused on unpacking the » The Department of Cooperative Governance and the National Treasury must monitor the important role of the coordinating ministries – the implementation of support initiatives already in place ministers of finance and cooperative governance, their to ensure that there is a multi-stakeholder approach counterparts in the provinces and the departments they to supporting local government, with clear roles head.

and responsibilities.


Municipal support intervention MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 03 plans must be specific and must ensure that the We will also continue to report on coordinating interventions are tailored for each municipality.
ministries as an integral part of the ecosystem to Cabinet is responsible for monitoring the success of advocate for full implementation of their mandates and these plans at the 64 dysfunctional municipalities, legal obligations, and to engage on the effectiveness of while the provincial executives are responsible their initiatives in local government.

for doing so at the remaining municipalities.


Role players should ensure that actions and activities have the desired impact and should therefore be Our third call is to communities and community organisations.

Active citizenry is crucial to ensure that the held accountable for their role in the plans to ensure needs of communities are heard and acted on, and that that there are consequences for non-performance.
» The provincial cooperative governance departments need to monitor how municipalities use consultants, municipal leaders are held accountable for their actions.

We call on all citizens to participate in the public processes of determining and reviewing the integrated which includes having a clear understanding of the development plan and the tabling of the annual report.
needs analyses performed, creating plans to reduce Citizens should also take part in ward committees, the overreliance on consultants, and ensuring that get involved in community organisations, and use the value is derived from the use of consultants.

These available channels to report any indicators of abuse, role players should focus on closing the skills and mismanagement, fraud and service delivery failures.

capacity gaps at local government level to improve the internal control environments.
The district development model aims to facilitate integrated planning, delivery and monitoring of government’s development programmes by introducing the concept of a joint ‘one plan’ for 52 spaces across A culture of performance, accountability, transparency and integrity should be a shared vision for all involved in local government.

59 the three spheres of government.


The model can We urge all role players to fulfil their designated contribute to improving service delivery and audit roles in the accountability ecosystem and to play outcomes but its successful implementation will require their part effectively and without fear or favour to a fully functioning local government characterised by ensure accountability for government spending and proper governance and financial management.
We improvement in the lives of our country’s citizens.

will continue to monitor developments and progress relating to this model through regular engagements with We trust that the insights and recommendations the Department of Cooperative Governance.

included in this report will be of value in this pursuit.
MFMA 2020-21 Consolidated general report on local government audit outcomesACTIVATING THE ACCOUNTABILITY ECOSYSTEM – A CALL TO ACTION SECTION 04 PROVINCES Every province has a unique story and the provincial outcomes often reflect what people in the province have experienced from their local government.
This section focuses on the state of local government in each province, how this state is affecting or will affect provincial residents, what should be done to improve the situation and by whom, and the commitments made by those with whom we engage.

For more details on each municipality and district, rolled up to each province in the country, visit www.mfma-2021.agsareports.co.za.
Audit outcomes, percentage of budget and households per province 60 GAUTENG LIMPOPO 2 7 1 1 0 0 1 16 8 0 2 0 1 2 30% 5 346 068 15 2 6% 1 687 383 NORTH WEST 0 3 9 1 1 9 0 8 7 5% 1 327 050 NORTHERN CAPE 5 5 15 0 4 2 8 7 2% 371 168 WESTERN CAPE 22 5 3 0 0 0 4 1 17% 2 048 859 EASTERN CAPE 4 16 14 11 4 0 10 13 10% 1 819 653 MPUMALANGA LP 4 7 5 11 3 0 4 6 6% 1 323 853 NW GP MP FS KZN NC WC KWAZULU-NATAL 3 35 13 0 3 0 EC 7 12 19% 3 025 288 FREE STATE 0 6 10 0 0 7 4 6 5% 985 001 Unqualified with no findings (clean) Unqualified with findings Qualified with findings Adverse with findings Disclaimed with findings Outstanding audits Movement over administration Percentage of budget Households MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 EASTERN CAPE Overall, the audit outcomes in the province regressed over the term of the previous administration.
Management did not adequately promote transparency and accountability or safeguard the public purse against all possible abuses.

As a result, we notified municipal managers of 27 material irregularities with an estimated financial loss of R254 million to date.

Efforts to institutionalise preventative controls have not yielded the desired outcomes.
While outcomes improved in the last two years repay prior year unspent funds allocated for infrastructure of the five-year period, these improvements might projects, which shows how poor discipline leads to poor not be sustainable.

Despite using consultants, most financial management – ultimately hampering desperately municipalities (including those with improved audit needed service delivery to citizens.
Makana had been outcomes) submitted financial statements for auditing disclaimed for the past three years, and we notified the that contained material misstatements, which required municipal manager of a material irregularity relating correction to achieve better outcomes.

Municipalities to substantial harm due to the municipality’s inability to spent R154 million on consultants in 2020-21 and deliver on its service delivery mandate.

R663 million over the past five years.


The main reason 61 given was inadequate skills, although municipalities Poor financial management practices continued were generally adequately capacitated with a 17% to plague municipalities.

We reported a material vacancy rate in the finance units.

Municipalities uncertainty relating to the financial sustainability of nine derived limited value from this spending as it did municipalities.
At seven of these municipalities, we not lead to improved audit outcomes, mainly due to notified the municipal managers of material irregularities inefficiencies on the part of municipalities (e.g.

a lack based on excessive interest relating to late payments of, or inadequate, records to support transactions).

The of Eskom and the South African Revenue Service.
financial challenges faced by the province mean that The salary bill for all of the municipalities within the municipalities cannot continue to rely on consultants and province exceeded the equitable share of R11,2 billion must use their resources more responsibly.

received from national government, and competed We saw evidence of overreliance on consultants at with service delivery for the limited government funds.
Despite the financial constraints, municipalities still did Walter Sisulu, which appointed consultants to prepare not use allocated funds responsibly.

For example, we financial statements.

However, these consultants left notified the municipal manager at Intsika Yethu of a during the audit, taking with them information and data, material irregularity with an estimated financial loss which contributed to the municipality’s disclaimed audit of R18 million because a contractor was paid for the opinion.
We saw similar overreliance at Chris Hani, construction of a gravel road and related material that which spent R34 million for value-added tax submissions.

were not completed or delivered.

Chris Hani, Makana, Sundays River Valley and Walter Municipalities’ continued failure to contract for goods Sisulu received disclaimed audit opinions because they and services in compliance with legislation placed could not account for funds allocated to them due to further pressure on the public purse.
We identified inadequate record keeping.

These municipalities had to 24 municipalities (62%) that transgressed procurement MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES legislation mostly by opting not to follow a competitive the continuing drought and water shortages.

Alfred bidding process but instead using deviations that were Nzo, Dr Beyers Naudé and Ndlambe were the only not justifiable.
This increased the risk that they might municipalities to report that they had achieved all of have paid a higher price than what they should have their water service delivery targets.

The water service for goods or services.


Municipalities also incurred providers incurred water losses of R546 million in irregular expenditure of R3,1 billion during 2020-21, 2020-21, putting further pressure on water delivery, adding to the irregular expenditure incurred in prior with 10 of the 14 water service providers incurring years of R24,1 billion that had not been investigated.

water losses above the norm of 30%.


This resulted in a lack of accountability and allowed the responsible individuals to continue to contravene The premier’s office, the provincial cooperative legislation.
Nelson Mandela Bay incurred 44% of governance and traditional affairs department and the irregular expenditure (R1,4 billion), mainly due to the provincial treasury collaborated on a number of awarding contracts based on deviations that were not initiatives to help local government build capacity, justifiable.

The metro also did not investigate most of improve administrative and financial management, the prior years’ irregular expenditure, ending with a and monitor and report on performance.
However, closing balance of R17,7 billion.

The municipal public these initiatives did not yield the desired results, as accounts committee’s last sitting to deal with irregular municipalities did not cooperate with these support expenditure was in November 2019. departments and were slow to implement their recommendations.
Interventions by the provincial The quality of performance information remains a government at Makana, Enoch Mgijima and Amathole concern, with management failing to implement the have not yielded any noticeable progress.

necessary preventative controls linked to service delivery reporting.
Most municipalities (56%) had Through the material irregularity process, management 62 material findings on their performance reports, including has shown that municipalities can deal appropriately Buffalo City, which did not have adequate systems to with irregularities.

We observed improvements in report on the common indicators determined for metros internal controls, responsible officials being identified, by the National Treasury.
disciplinary processes being initiated, and criminal investigations being referred to public bodies where Although the province was plagued by droughts over there were elements of theft or fraud.

the five-year term, it did not respond to this with the necessary urgency.

The provision of water services rests with the two metros and five district municipalities, as well the seven local municipalities in the Sarah Baartman district.
According to their records, these Provincial leadership must take swift action to strengthen the control environment and instil accountability to ensure that objectives within the province are met.
In this vein, the premier has committed water service providers produced 476 million kilolitres of water compared to 464 million kilolitres in the to ensure that political appointees have the necessary qualifications for their positions and not just political previous year, but most of them could not reliably standing; that accountability is taken more seriously, with report on their performance for water service delivery.
a greater focus on addressing underperformance, poor Municipalities also did not adequately maintain their financial reporting and irregular expenditure; and that ageing infrastructure, spending only 1% of their total focused attention is given to disclaimed audit opinions, expenditure on repairs and maintenance – far less saying it is unacceptable for a municipality to be unable than the norm of 8%.

In OR Tambo, we identified to account for its finances.
The provincial treasury has water infrastructure projects that were not functioning, even though they were reported as complete in the committed to identifying skills gaps at municipalities and providing assistance where necessary, particularly when annual performance report.

Nelson Mandela Bay it comes to preparing financial statements.
The provincial did not set any indicators in its service delivery and treasury will also continue to assist with compiling audit budget implementation plan for key projects to address improvement plans and monitoring their implementation.

MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 FREE STATE The audit outcomes of the province regressed over the term of the previous administration.

During the five-year period, the province did not achieve any clean audits.
Inaction by political and administrative leadership continued to be a deliberate obstruction to municipalities’ effective functioning.

The provincial leadership should be very concerned about this state of affairs.

Municipalities did not have the discipline to submit been allowed, another seven auditees (41%) would their financial statements by the legislated date.

In have received qualified audit opinions.


2020-21, only 52% of municipalities submitted their financial statements on time, compared to 80% in Four municipalities have a history of disclaimed 2016-17.

By the date of this report, the audits of opinions and their 2020-21 financial statements were seven municipalities had not been completed as not submitted or only recently submitted for auditing.
a result of the late or non-submission of financial When a municipality receives a disclaimed opinion, it statements.

We escalated the non-submission to means that we could not determine if public funds were the relevant councils and the provincial leadership, appropriately accounted for due to a lack of adequate 63 but their response was ineffective.

We notified the record keeping and credible financial reporting.
This responsible accounting officers and authority that the state of affairs has systematically destroyed these non-submission of financial statements constitutes a institutions, contributing to their poor financial health material irregularity, as delays in the accountability and negatively affecting their ability to deliver basic processes are causing substantial harm to these services.

We issued material irregularity notifications municipalities.
The lack of transparency for the to the applicable municipal managers based on the finances and performance of these auditees should substantial harm caused to these municipalities.

not be tolerated by councils, provincial leadership or oversight.

We performed additional audit work on the infrastructure and payment profiles of Masilonyana, Poor financial management disciplines and in-year financial reporting processes meant that none of Maluti-A-Phofung and Tokologo.
We determined that only Masilonyana had a plan and budget for the the municipalities could prepare credible financial routine maintenance of infrastructure assets, while statements in 2020-21.

They continued outsourcing Maluti-A-Phofung and Tokologo had no plan to ensure their responsibility by appointing consultants after that their infrastructure assets were properly maintained.
year-end to prepare the financial statements and to The municipalities were not fulfilling their service construct and correct the underlying information.

A delivery mandates.

For example, all seven wastewater total of R254 million had been spent on consultants treatment works at Maluti-A-Phofung collapsed and the since 2016-17.
The reliance on the audit process to plants were not operational due to a combination of identify errors in the poor-quality financial statements poor management, theft and vandalism.

This resulted submitted for auditing also continued.

All auditees in raw sewage being discharged into the environment.

needed to make significant adjustments to correct We issued notifications of material irregularities for four material errors in the figures presented.
If this had not of these plants due to the likely substantial harm to the MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES public.

In addition, our data analytics revealed that withheld conditional grant funding of R429,02 million these municipalities were exposed to the risk of not due to underspending that resulted from delays in being able to detect fraudulent activities because they completing grant-funded projects.
This placed further did not use unique identifiers for transactions in the strain on the metro’s financial health and also had a bank statements and the general ledger.

negative impact on service delivery.

The metro spent less than 2% of its infrastructure budget on repairs Municipalities have gone backwards in meeting project and maintenance, resulting in infrastructure such deadlines for infrastructure projects.

In 2016-17, as roads and water networks further deteriorating.
only 10% did not meet project deadlines, but this Service delivery protests increased as residents grew had increased to 60% in 2020-21.

For example, at increasingly dissatisfied with pothole-riddled roads, Metsimaholo, the project for installing 4 000 sewer having to go for days without water, and refuse connections was delayed by almost two years due sometimes not being collected for weeks.

Although to poor planning.


During the course of the project, the metro held public participation sessions where the additional houses needing sewer connections were also needs of the community were received and planned identified and additional time was needed for repairs.

for, many of the planned targets were not achieved because they were not prioritised and/or because of Most municipalities struggled to perform preventative a lack of funding.
Since projects were not completed, maintenance and safeguard their infrastructure assets, the communities’ needs were not addressed, which because they spent only 1% of their infrastructure value negatively affected their lives.

on repairs and maintenance, compared to the norm of 8%.

Repairs were only done after assets had broken We continued to identify and report material findings down.
For example, a wastewater treatment plant that on compliance with legislation at all auditees, including was earmarked to be decommissioned in Moqhaka in the area of procurement and contract management.

64 continued to be used while design challenges on the Irregular expenditure remained high – the closing new plant were being addressed.
Due to the lack of balance increased from R7,63 billion to R9,18 billion maintenance over a number of years, the plant was not because the municipal public accounts committees functioning effectively, resulting in sewage spillage that did not perform timeous investigations.

The lack of contaminated the Vals River.

consequences has created a culture of impunity and a complete disregard for the rule of law at all levels of Financial health continued to deteriorate across the municipal officials.

province.
province.

Eleven auditees (73%) disclosed (or should have disclosed) a material uncertainty whether they In a province where there is such dire need for service would be able to meet their financial obligations as delivery, continued waste, disregard for legislation and they became due.

The debt of these municipalities a lack of consequences are unacceptable.

Every rand exceeded what they can convert to cash to pay for it by R8,69 billion (2019: R7,41 billion).
The spent is a precious resource that should be used wisely.

amounts they owed to Eskom and the water boards We notified municipal managers of 24 material continued to increase, reaching R12,45 billion irregularities.

Material irregularities issued for (2019: R10,52 billion).
Unmetered consumption, theft late payments to Eskom resulted in the affected and a lack of maintenance resulted in average water municipalities negotiating payment plans, as well as losses of 49% and electricity distribution losses of 20%.

increased scrutiny of accounts received to ensure that they were accurately billed, significantly reducing On 1 January 2020, the provincial executive intervened at Mangaung by imposing, and assuming the amount of interest incurred.
Municipalities also took action where late payments were made to the responsibility for, a recovery plan that aimed to secure South African Revenue Service for pay-as-you-earn the metro’s ability to provide basic services and meet deductions.

Although most municipal managers are its financial commitments.
The National Treasury taking the material irregularity process seriously, in some MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 cases they were slow to implement the planned actions.

strengthen the processes of compiling MFMA This led to one material irregularity being referred section 131 and MSA section 47 reports.

These to a public body for investigation.


Intervention and reports were not effective as they did not determine council oversight are vital to ensure that these material whether municipalities had adequately addressed all irregularities are addressed and do not recur.

the findings reported in the audit report or proposed remedial action to address the findings.

Urgent action to strengthen controls is required to achieve the desired outcome.
All role players should be dedicated to rebuilding strong and credible The incoming councils should set the correct tone at the top.

They have the opportunity to deal with years of municipalities with high levels of transparency, integrity impunity and lack of consequences and to champion and accountability.

The provincial treasury, the MEC improved audit outcomes.
They should ensure that there for local government and the provincial cooperative is stability in administrative leadership vacancies are governance and traditional affairs department should filled, and officials are capacitated to perform their intensify interventions to support and strengthen duties.

This will ensure service delivery and earn the the capacity of municipalities.

The MEC must also trust of their communities.


GAUTENG 65 In 2016-17, we reported on the stagnant audit outcomes in the province, with most municipalities receiving unqualified opinions with findings and only Midvaal securing a clean audit.

We previously also highlighted that despite pockets of improvement, inadequate monitoring resulted in stagnant outcomes and increasing levels of unauthorised, irregular, and fruitless and wasteful expenditure.
Effective monitoring of preventative controls is key for favourable audit outcomes.

Therefore, we emphasised that auditees need to implement sound internal controls and that oversight structures need to hold municipal managers accountable for addressing the stagnant audit outcomes and for implementing consequences promptly.
In the first two years of the previous administration’s years, and Midvaal for the past eight, as this indicates term, municipalities produced good-quality financial sound governance practices and effective preventative statements and Gauteng was the only province without controls.

negative financial outcomes.

However, over the past three years we have seen a concerning emergence of The province’s service delivery model is unique, with qualifications.
In 2020-21, Rand West City received a number of specialised municipal entities responsible a qualified opinion for the second consecutive year, while Merafong City did not submit financial statements for a significant portion of the province’s municipal expenditure and service delivery programmes.

While by the legislated date and regressed to an adverse the four largest entities by budget allocation, namely opinion.
It is commendable that the City of Ekurhuleni City Power Johannesburg, Johannesburg Water, Pikitup sustained a clean audit outcome for the past two Johannesburg and Johannesburg Roads Agency, MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES sustained their unqualified audit opinions with findings, incurring a combined R3,82 billion (85% of the total it is concerning that the audit outcomes of six other at municipal level).
City Power, a municipal entity of entities had regressed since 2016-17. the City of Johannesburg, incurred R1,03 billion (50% of the total at municipal entity level).
These amounts Despite the province having access to an abundance represented 5%, 19% and 20% of these auditees’ of skilled personnel, especially at metro level, eight adjusted total capital and operational budgets municipalities continued to rely on the audit process to (excluding expenditure on salaries and bulk purchases), produce quality financial statements.

This negatively respectively.


Irregular expenditure increased the risk of affected the ability of municipal managers to make funds meant for service delivery being misused.

We key service delivery decisions in good time – to the again call on oversight structures to ensure that they detriment of citizens.
In addition, since 2016-17, the promote a culture of accountability and consequences province had spent R919,11 million on consultants by fast-tracking investigations into unauthorised, for financial reporting.

Most of this amount was spent irregular, and fruitless and wasteful expenditure, and by the City of Tshwane to produce a compliant fixed holding those who are liable to account.

asset register that would allow the metro to manage all of its assets properly, which is key to service delivery.
The financial health of all municipalities remained However, material corrections had to be made to concerning, as revenue collection remained poor the work of consultants in the submitted financial despite post-covid-19 recovery measures being statements.

Municipalities need to ensure that they do implemented.
In recent years, the three metros, not waste their limited funds on consultants without which are responsible for 88% (R120,54 billion) of deriving benefits, including adequate skills transfer from the provincial local government budget and service consultants to officials.

approximately 4,82 million households, have used listed bonds as part of their funding model.
However, 66 As part of their service delivery objectives, these metros were recently downgraded by ratings municipalities engaged residents through public agencies, which will make it more difficult and costly participation sessions; however, they did not ensure that for them to obtain the capital they need for key they addressed all service delivery concerns in their infrastructure projects.

service delivery and budget implementation plans.


Only the City of Ekurhuleni fully implemented the common The poor financial position of some municipalities performance indicators determined by the National also contributed to low levels of spending on the Treasury.

Municipalities also did not achieve all of the maintenance of infrastructure assets (below the norm of targets set, which negatively affected service delivery to 8%).

Most of these assets were nearing or exceeding residents.
Despite ongoing reforms, eight municipalities their useful lives, which negatively affected the quality did not publish credible performance reports, which of services received by citizens.

Some municipalities negatively affected the ability of both municipalities and residents to properly assess services committed to by did not spend their full grant allocations despite having only limited funds at their disposal.

In some the administration.


instances, they had to surrender funds to the National Treasury, which contributed to performance targets We remain concerned about non-compliance with not being achieved and much-needed services not legislation in the province, with little improvement being delivered to citizens.

Considering their poor year-on-year.


Consequently, the closing balances financial position, municipalities should ensure that of unauthorised, irregular, and fruitless and wasteful they spend their limited funds efficiently.

They also expenditure continued to increase, mainly due to additional amounts being incurred and the previous need to eliminate losses from fruitless and wasteful expenditure, which reached the billion rand mark, balances not being investigated promptly and resolved.
to remain on track with rolling out critical services The irregular expenditure incurred remained high, with and infrastructure, as well as maintaining key service the City of Johannesburg and the City of Tshwane delivery assets.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 We issued 15 material irregularities linked to various committees should closely monitor any remedial action instances of non-compliance in the province, with required for underperforming municipalities based on an estimated financial loss of R390,14 million.

the MFMA section 131 and MSA section 47 reports of We are beginning to see the impact of our material the MEC for local government.
irregularity process, as most municipal managers have implemented corrective steps and initiated disciplinary Going forward, we will closely track the commitments processes, and are in the process of recovering made by key provincial leaders.

This includes the financial losses.


However, at the City of Tshwane, we premier’s commitments to provide greater oversight included three recommendations in the audit report due of municipalities through the provincial cooperative to the slow progress made on committed actions.
We governance and local government department and the also issued one material irregularity notification based provincial treasury, to establish a war room focusing on harm to the public due to the poor quality of water on improving municipal outcomes, and to use the supplied to Hammanskraal residents.

Provincial leadership needs to embed preventative control monitoring and timeous consequence management to improve audit outcomes.
We urge the incoming councils and municipal public accounts premier’s coordinating council to drive consequence management and accountability with the goal of having a sustained impact on service delivery.
The provincial treasury has also committed to conducting internal audit reviews at municipalities, training supply chain management officials and municipal public committees to hold municipal managers accountable accounts committee members, and intensifying support so that funds are used to enable quality basic service to struggling municipalities.

delivery.

The provincial legislature and portfolio KWAZULU-NATAL 67 The audit outcomes reflect a net regression over the term of the previous administration.
This was partly due to inadequate leadership action in responding to key risk areas, political infighting and instability in key positions.

The lack of enforcement of accountability and consequence management by leadership also persisted amid some improvements in audit outcomes since the previous year.

In 2020-21, eThekwini, which accounted for 53% municipalities with qualified opinions continued to (R47 billion) of the local government budget in the struggle with basic financial management.
Political province, retained its unqualified opinion with findings.

instability, inexperienced officials and system-related To improve its audit outcome, the metro should challenges led to the poor opinions at the three focus on strengthening its monitoring and review of disclaimed municipalities, all of which were under procurement and consequence management.

Four administration.


Inkosi Langalibalele, which was formed district municipalities (Amajuba, Ugu, uMzinyathi when uMtshezi and Imbabazane merged in 2016-17, and Uthukela) received a qualified opinion and one was again disclaimed in 2020-21.

The amalgamation (uMkhanyakude) received a disclaimed opinion.
District created significant challenges with the credibility of MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES the financial records, which the municipality is still does not provide a true reflection of service delivery grappling with despite using consultants and having an and may contribute to service delivery protests.

For administrator in place since 2016-17.


Although three example, uMkhanyakude had material findings on municipalities obtained a clean audit opinion, this did its annual performance report and was plagued by not always translate into effective and efficient service going concern challenges, which affected its ability to delivery, as they did not achieve all of their key service provide services.

This, in turn, resulted in community delivery targets.

Sustainably improving provincial protests.


Municipalities must improve their record- audit outcomes will require a committed and stable keeping practices and the efficiency of their systems political and administrative leadership with experienced and processes for collating and reporting performance and competent officials who are actively involved in information to ensure that the achievements they report creating a strong control environment.
for key service delivery infrastructure projects are credible.

While most of the province’s infrastructure Despite adequately capacitated and skilled finance funding was spent, poor project management resulted units and support from consultants and coordinating in quality defects on housing, water, sanitation and departments, the consistent poor quality of financial other projects.

Municipalities should diligently monitor statements remains concerning.
The quality of the key infrastructure projects to ensure that resources submitted financial statements regressed over the are used economically and effectively to help the five-year period.

Although municipalities paid economy grow.


The current state of disaster due to the R698 million to financial reporting consultants over this recent floods in the province is likely to exacerbate the period, there was only limited improvement in control challenges municipalities face in completing planned environments and audit outcomes.

Management did infrastructure projects.

not adequately implement and monitor action plans to improve the control environment.
In addition, the lack Most municipalities (89%) still struggled to implement 68 of standardised processes, poor record management preventative controls over supply chain management and inadequate review and reconciliation of financial processes, which contributed to the high levels of reports persisted.

Consultants should only be used irregular expenditure.
The closing balance of irregular in favourable control environments, with adequate expenditure incurred more than doubled over the term of support being provided and skills being transferred the previous administration, from R7,19 billion in to ensure that the limited public funds are spent 2016-17 to R14,45 billion in 2020-21.

Consequences effectively and responsibly.


were not implemented effectively, which created a culture of tolerance for transgressions as most Poor financial management practices, such as municipalities did not deal sufficiently with the ineffective revenue and debt collection processes, increasing irregular expenditure.

Councils investigated continued to plague municipalities.
This had a negative and wrote off 17% of the prior year closing balance, effect on service delivery, as municipalities struggled to pay outstanding creditors on time.

The accounts of with most of these investigations having concluded that no official was liable.

To reduce irregular expenditure, Eskom and the water boards were R1,85 billion in municipalities need to implement and monitor effective arrears.
Municipalities also struggled to practise sound and standardised processes, including procurement financial management and budget monitoring, as 15% checklists, to ensure that officials adhere to supply of them reported deficits for the year.

The metro has chain management legislation.


The new administration plans to secure new borrowings by issuing R1 billion in should focus on enabling council committees to ensure bonds, which will help to improve its liquidity and fund robust and timeous investigations that will result in service delivery initiatives.

consequences being enforced against responsible officials.
The reliability of performance reporting improved over the five-year term, but remained a challenge at We issued notifications for material irregularities some municipalities.

Unreliable performance reporting relating to unfair procurement processes, payment for MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 goods or services not received or not used, interest or qualified audit opinions.
Leadership will direct on late payments, revenue not billed, and assets not financial experts assigned to municipalities towards safeguarded.

Most of the municipal managers are taking key areas reported on and will address the adequacy appropriate action in response to the notifications, but of resources at municipalities to reduce the load on the timeliness of these actions could be improved.

allocated administrators.


The speaker of the provincial legislature also committed to collaborate with all role The support provided by the coordinating departments players through internal working sessions to improve helped to improve the control environments at oversight and accountability.

some municipalities.


We urge these departments to collaborate consistently with management; conduct Preventative controls and consequence management proactive risk assessments; and perform a thorough diagnostic analysis of audit outcomes, quality of action plans and corrective action taken.

This will need to be further strengthened to trigger sustainable audit outcomes.

Leadership and management must also pay closer attention to service delivery – and ensure the greatest impact on audit outcomes.
The to transparency in reporting on service delivery – to provincial leadership has committed to implementing ensure that funds are used efficiently to maximise our recommendations and insights by working closely service delivery and ultimately improve the lived reality with municipalities, especially those with disclaimed of citizens.
LIMPOPO 69 During the term of the previous administration, we saw a notable improvement in audit outcomes, especially in the adverse and disclaimed opinions of municipalities such as Mogalakwena, Thabazimbi and Modimolle-Mookgophong.

As we highlighted in our 2019-20 general report, we remained concerned about how sustainable this was, as the improvements were driven by an overreliance on consultants and audit adjustments with little to no improvements in the control environment.
Municipalities spent more than R971 million on errors were due to deficiencies in internal control, consultants for financial reporting over the five-year unreliable information supplied to consultants, and period.

This included R245 million in 2020-21, inadequate controls to monitor consultants’ deliverables.

despite municipalities employing officials who should have performed some of the functions.
These funds Municipalities continued to contravene legislation could have been spent to help individuals in key and we reported material non-compliance at most positions obtain the required skills, improve the control municipalities.

The most common findings related to environment, and address service delivery challenges.
material misstatements in the financial statements; Despite the excessive use of consultants, we identified unauthorised, irregular, and fruitless and wasteful material errors in the financial statements submitted for expenditure; and procurement and contract auditing by all municipalities except Waterberg.

These management.
These management.

Municipalities incurred R1,8 billion in MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES irregular expenditure in 2020-21, mostly resulting done, and one to non-qualifying customers receiving from non-compliance with supply chain management free basic electricity.

Overall, we find it encouraging legislation.


Municipalities also did not sufficiently that municipal managers were responsive and took investigate and resolve 83% (R5 billion) of the appropriate action to ensure that no further financial prior year irregular expenditure closing balance of losses were suffered, including enhancing the internal R6 billion, which thus increased to R9 billion.
This control environment, investigating the irregularities excessive increase in irregular expenditure heightens and holding the responsible officials accountable.

the risk of funds intended for service delivery being Municipalities also updated their investment policies to misused.

Oversight structures must set a strong tone and prevent prohibited investments from recurring.

cultivate a culture of holding officials accountable for transgressions.
It is concerning that all municipalities except Waterberg and Capricorn had to make adjustments The province’s financial health continued to deteriorate to the performance reports they submitted for auditing.

despite our consistent calls for the provincial leadership These misstatements occurred because corrective to attend to the crisis.
As a result, we identified five action was not taken to address identified control municipalities (Ba-Phalaborwa, Musina, Mopani, weaknesses and reviews were not adequate, which Thabazimbi and Modimolle-Mookgophong) as being resulted in differences between the performance in a vulnerable financial position, with the latter three reported and the relevant supporting documentation.

having been in this state for five years.


This indicates If municipalities cannot account for their performance, that the provincial interventions deployed at these we cannot conclude that services are being delivered municipalities were ineffective.

The municipalities consistently and at the required quality.

Without could not recover money from consumers for services relevant and measurable performance plans, rendered.
Together with ineffective budgetary municipalities may be unable to appropriately address 70 management processes, this led to delays in paying the key needs of the citizens they serve.

creditors.
creditors.

This state of affairs can be seen in the large outstanding debt amount of R3,2 billion, which In a province facing water service delivery challenges, includes interest owed to Eskom and the water boards; it is concerning to note delays in projects such as the average creditor payment period of 166 days; upgrading the Vondo water treatment works and and the low spending on infrastructure maintenance constructing the Phiphidi reservoir in the Vhembe district.
and resultant dilapidated infrastructure assets and poor Both of these projects were planned to have been service delivery.

In addition to the substantial amount completed by July 2020 and the delays have denied of irregular expenditure, municipalities incurred citizens their basic right to a fresh water supply.
We R3,6 billion in unauthorised expenditure – a also noted that the original scope of work increased significant increase from the previous year and an significantly, which could lead to irregular expenditure indication of inadequate budgetary processes.

To curb this deterioration in financial health, we urge in future.
Ultimately, the impact of these delays is a continued shortage of infrastructure, delayed services to the provincial treasury and the provincial cooperative citizens, and the deterioration of existing infrastructure.

governance, human settlements and traditional affairs Leadership needs to increase oversight of project department to help municipalities improve their management and implement consequences for those budget and cash flow management processes, and responsible for failings.
to develop and implement strategies that will improve revenue and debt collection.

To improve the overall control environment at We issued 10 material irregularities with an estimated municipalities, leadership must set the tone for sound financial disciplines and must strengthen detective financial loss of R1,2 billion.

Seven of these material and preventative controls.


Municipal public accounts irregularities related to prohibited investments made, committees and councils should lead by example and one to revenue not billed, one to payments for work not ensure that there are consequences for accountability MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 failures.
The provincial treasury and provincial encouraged by the premier’s commitment that the cooperative governance department must help provincial treasury will help municipalities build municipalities to develop appropriate action plans capacity within their finance units, as well as his that address the root causes identified through our instruction to municipalities to reduce their consultant audits.
Municipalities must also fill key vacancies and spending by 60% and his call for municipalities to capacitate their finance units through skills transfer and implement consequences for wrongdoing immediately.

training programmes, with the support of the premier’s We also acknowledge the commitments made by office, provincial treasury and provincial cooperative the provincial legislature and provincial cooperative governance department.
Municipalities should embrace governance department to capacitate councillors the support provided and increase the skills of their own through training programmes so that they can better personnel in the process.

To improve the quality of the understand their roles as an oversight body.
We call information submitted for auditing, municipal managers upon the provincial leadership to closely monitor the and the provincial treasury must drive a process of implementation of these commitments, to ensure a preparing credible in-year financial statements and positive impact on both the state of local government performance reports.

and the lives of the people of Limpopo.

Capacitation of officials in key positions is required for sustainable improvements.
We are therefore MPUMALANGA 71 Overall, audit outcomes regressed over the term of the previous administration due to a lack of institutionalised preventative controls.

Municipal managers and senior management did not fulfil their responsibility to develop and effectively implement the basic controls that form the foundation of a sound control environment.
Although we commend the province for the improvement in the 2020-21 audit outcomes, the improvements are not sustainable because weak control environments and a lack of decisive action to address transgressions persist.

There are four key areas that need to be managed Municipalities invested a total of R832 million in urgently and effectively to improve accountability and financial reporting.
This amount included money spent service delivery at municipalities – an effective control on salaries for staff in municipal finance units and on environment, sustainable financial health, effective consultants to assist with producing financial statements.

infrastructure project planning and management, and Municipalities had stable finance units (18% vacancy compliance with legislation, especially as it relates rate on average) with stability in chief financial officer to procurement and consequences.
Neither the positions (35 months on average).

They also had administrative nor the political leadership invested in internal audit units and audit committees to review sustainable solutions to manage these areas.

the financial statements and received assistance from MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES coordinating departments.
Despite this, only four overspent their budgets, resulting in unauthorised municipalities (20%) were able to submit credible expenditure during the year under review.

This poor financial statements for auditing.


Municipalities financial discipline continued to cripple municipalities’ continued to rely on the audit process to identify financial health and seven municipalities (35%) disclosed misstatements, as we can see from the 35% (7) that significant doubt about their ability to continue operating received an unqualified audit opinion only after as a going concern in the near future.

Due to the lack of correcting misstatements we identified during our audit.
financial resources, municipalities did not budget enough for infrastructure asset maintenance, which resulted in The number of disclaimed opinions increased over ageing infrastructure, significant water and electricity the five-year period.

Disclaimed and adverse audit losses, and – consequently – the underachievement of outcomes are inevitable if fundamental management service delivery targets.
Municipalities were also unable principles, such as effective preventative controls to accurately bill residents for basic services and did not and appropriately skilled staff, are not embedded.

collect as much as possible of what they had billed, with Municipalities such as Lekwa, Dipaleseng and 60% of the debt balance in the province provided for as Dr JS Moroka, which again had disclaimed opinions, irrecoverable.
This led to municipalities relying more on and Emakhazeni, which again had an adverse grant funding than on own revenue.

Without adequate opinion, are typical examples of this.

cash flows and cash reserves, municipalities continued to struggle to pay their creditors and used the following Govan Mbeki improved from its previously disclaimed year’s budget to settle the outstanding bills, jeopardising opinion to a qualified opinion in 2020-21.

The future service delivery initiatives.


Overdue accounts municipal manager and the chief financial officer also attracted interest and penalties, which contributed ensured that they reconciled bank and cash to fruitless and wasteful expenditure.

We issued two successfully.

Despite this improvement, the municipality material irregularities in this regard.
72 struggled to use its funds to deliver quality services to communities, as illustrated in the significant deficiencies The ineffective financial management system and we identified when visiting the Evander wastewater control environment negatively affected the delivery treatment works.

The municipality spent only 4% of of infrastructure projects to communities.
While its infrastructure value on infrastructure maintenance municipalities spent 98% of the R2,56 billion in 2020-21, which is below the norm of 8%, further earmarked for infrastructure development during the adding to the dilapidation of infrastructure.

year, the spending sometimes happened without following procurement legislation, contributing to Lekwa was one of the municipalities that the the R1,26 billion in irregular expenditure.
Poor finance minister placed under administration project management also led to major project through section 139(7) of the Constitution.

While delays, payments for goods and services not the municipality created a credible financial recovery plan to address the identified deficiencies, the impact received, and overpricing.

We issued five material irregularity notifications relating to these areas at four was not evident in the 2020-21 audit outcomes.
This municipalities, with estimated financial losses totalling was due to the late appointment of the administrator R15,9 million.

Although the province took steps to (which occurred one month before the 2020-21 deal with irregular expenditure, the consequence financial year-end), the widespread challenges that management wheel continued to turn very slowly the plan seeks to address, and the lack of cooperation as investigations were either not done or not done from key members of management.
promptly, or action was not taken against officials who Ineffective financial and asset management, especially around budgeting, revenue generation and revenue Although some of the targeted municipalities have collection, further illustrates the lack of fundamental started seeing improvements from the support initiatives management disciplines.

Thirteen municipalities (65%) provided by coordinating departments, we will only had permitted the irregular expenditure.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 be able to fully assess the impact of the support governance and traditional affairs, the premier’s provided in next year’s audit due to the timing of the interventions.

Sustainable solutions are required by leadership to improve control environments and enforce consequence management.
The premier has outlined and committed to specific actions that provincial office and the local government oversight committees through the provincial speaker’s forum.

To improve audit outcomes and the quality of service delivery, all role players in the local government accountability ecosystem, including coordinating ministries, must perform their roles leadership will implement, through the integrated effectively by finding sustainable solutions to the four key municipal support plan.
The plan aims to strengthen matters described above.

These solutions should include the internal control environment and improve financial leadership setting the correct tone at the top, stabilising health, planning and monitoring of infrastructure projects, and capacitating the administration, insisting on strong and compliance with legislation.
The speaker of the preventative controls, and ensuring that strong measures provincial legislature has committed to strengthen are in place to institute consequences where there are the work of the portfolio committee on cooperative accountability failures.

NORTHERN CAPE Overall, audit outcomes improved over the five-year term of the previous administration, mainly due to 73 district municipalities improving their outcomes by addressing compliance findings.
However, we find it concerning that the outcomes of most local municipalities remained unfavourable and that the number of disclaimed municipalities did not decrease – pointing to leadership not adequately responding to our audit findings.

The service delivery challenges that citizens face continued or became even worse during the five-year period.

The weak control environment at most local municipalities contributed to the undesired audit outcomes, which negatively affected service delivery.
The timeous submission of financial statements was but many lacked the required skills.

As a result, a concern throughout the five-year period and only 65% of municipalities submitted financial statements municipalities appointed consultants year after year to perform some of their work.

The total cost for on time in 2020-21.


The late submissions were mostly these consultants over the five-year period came to due to the poor state of accounting records caused by R282 million, with the cost in 2020-21 amounting weaknesses in internal control.

The quality of financial to R62 million.


Because of their own inefficiencies, statements submitted for auditing also remained poor municipalities did not necessarily derive value from these – only 17% of municipalities submitting good-quality consultants.

These inefficiencies included errors on the financial statements, while a further 17% received part of the municipality and a lack of credible information unqualified audit opinions only because they corrected for preparing financial statements.
Consequently, most all misstatements we identified.

This confirms that municipalities that appointed consultants received a municipalities continued to rely on the audit process qualified audit opinion.

Municipalities need to perform a to achieve good-quality financial statements.

Most proper needs analysis to ensure that consultants are used municipalities had sufficient staff in their finance units, efficiently and effectively.
MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES Performance reporting was also a concern over the of infrastructure, such as roads, water networks and term of the previous administration.

In 2020-21, 6% of sewerage plants, as well as municipalities neglecting municipalities could not produce credible performance their responsibility to deliver basic services to their reports that contained reliable and useful information.

communities.
communities.

For example, Sol Plaatje did not have Five municipalities had no findings on their performance indicators to monitor key service delivery aspects, reports only because they corrected all the findings we which contributed to the poor state of roads and water identified during the audit.

Once again, this points to infrastructure in the municipality, resulting in damage to municipalities continuing to rely on the audit process.

vehicles and communities often being left without water.
In some cases, the scope of our audit was limited because municipalities could not provide sufficient and We identified uncompetitive and unfair procurement appropriate audit evidence to support their reported processes at 87% of the municipalities.

This largely achievements.


Municipalities thus had still not designed contributed to the increase in irregular expenditure proper processes to ensure that credible performance of the municipalities of which the audits had been information was readily available.

Municipalities often completed to date, which increased to R1,1 billion omitted indicators that focus on service delivery when from R806 million in the previous year.
Only 26% of preparing their performance plans, which contributed to the prior year irregular expenditure balance was dealt deteriorating municipal infrastructure.

This, in turn, led to with in the current year.
Municipal managers and communities experiencing frequent service interruptions; municipal public accounts committees need to do more delays in getting deficiencies such as burst pipes, to not only prevent and detect irregular expenditure, but blockages and failures fixed; and the poor state of also to investigate this unwanted expenditure when it roads – all of which are affecting citizens’ quality of life does occur and ensure that consequences follow so that and safety.
financial management can be improved and potential fraud can be prevented.

When every rand is precious 74 Municipalities’ financial health remained dire, with and value for money must be achieved through every 11 municipalities reporting significant doubt about transaction to improve service delivery, irregular whether they would be able to continue to operate, expenditure is unacceptable – especially when it recurs further limiting their ability to provide much-needed year after year.
services to citizens.

Poor debt collection (69% of debt was provided for as irrecoverable) and the practice In 2020-21, we performed additional audit work at of spending part of the following year’s budget in the two municipalities (Joe Morolong and !Kheis) that had current year (with 70% of municipalities spending more repeatedly received disclaimed opinions.
At !Kheis, we than half of their following year’s budgets in this way) could not confirm the completeness of transactions in resulted in municipalities being unable to pay their the cash book as the relevant module on the accounting service providers (average creditor payment period system was not activated.

This created a significant of 527 days).


This is reflected in the large arrears owing to Eskom (R1,5 billion) and water boards risk that payments could be made to suppliers that had not performed work for the municipality.

Another key (R316 million).

observation was that both municipalities lacked proper and credible maintenance plans, which contributed to Most municipalities focused more on managing their the poor state of their assets.
Both municipalities spent cash flow to pay salaries at the end of the month than less than 1% of their budget on asset maintenance, on maintaining their infrastructure and service delivery far below the norm of 8%.

This explains the visible assets.

This is evident from the municipal salary bill dilapidation we found during our visits to municipal (including councillor remuneration), which amounted to R2,5 billion, representing 46% of total revenue infrastructure sites.

(excluding conditional grants).


This means that only a We identified five material irregularities in 2020-21, limited portion of the municipal budget was available most of which related to full and proper records not for other priorities.

The result was the gross deterioration being kept.


Municipal managers in general have been MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 responsive to our notifications and we urge them to will be a focus on disclaimed audits and pressure focus on the area of compliance to prevent material will be placed on municipal managers to ensure that irregularities.

Where the material irregularities were these opinions improve.
In the past, we have noted caused by non-compliance, they should ensure that that provincial leadership and oversight tend to make there are consequences for those involved.

good commitments, but regularly found that these were not honoured due to limited systems to monitor the The MEC for local government has not yet tabled commitments made.
Coordinating departments need either the MFMA section 131 report or the MSA to implement a mechanism to ensure that progress on section 47 report to the provincial legislature, which commitments is properly tracked and, where progress is would provide valuable insight into the state of local lacking, that steps are taken to rectify the situation.

government in the province.


Provincial oversight has committed to ensuring that municipalities’ service Turning the tide will be no easy task and will require delivery and budget implementation plans are reviewed for the relevance, clarity and credibility of performance information.

The role of councillors as part of the accountability ecosystem will be elevated to enhance consequence management, and municipal a combined effort by both municipal leadership and municipal and provincial oversight.
We call on municipal leadership to act by strengthening the basic control environment and accountability.

Audit outcomes will only improve if the relevant role players managers will be engaged in an effort to improve the implement basic controls, nurture a culture of doing submission of financial statements.

In addition, there things right the first time, and curb wastage.
NORTH WEST 75 In our 2019-20 general report, we drew attention to the total neglect of internal control disciplines in the province, which resulted in financial and operational collapse, weakened governance and a lack of accountability.

We have since seen some municipalities heeding the call to action and focusing on reversing negative trends, as evidenced by improvements at five municipalities.
Unfortunately, the state of local government over the term of the previous administration was characterised by leadership instability, which resulted in a lack of accountability, a general state of disarray and little to no service delivery.

Financial governance weaknesses, ineffective provincial interventions, lack of institutionalised preventative controls, compromised accountability and general poor performance further weakened service delivery.
Despite year-on-year improvement, the overall audit (nine) receiving qualified opinions and another outcomes were stagnant over the five-year period.

In 41% (nine) receiving disclaimed opinions in 2020-21. the first year (2016-17), the dominant audit outcomes Therefore, we continue to urge the executive leadership were qualified opinions at 54% (12) and disclaimed and oversight structures to hold municipal managers and opinions at 36% (eight) of auditees.
This picture did officials accountable for poor audit outcomes and to not change significantly, with 41% of auditees implement consequences promptly where required.

MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES The submission of financial statements for auditing by provincial treasury should assist municipalities with the legislated date decreased from 100% in 2016-17 financial recovery plans, revenue enhancement to only 45% in 2020-21.
This downward spiral strategies and budgetary control initiatives.

shows a worsening culture of accountability over the period.

The quality of performance reporting is Despite their financial difficulties, municipalities spent also concerning, especially since most municipalities R238 million on financial reporting consultants, reported that they had not achieved their set targets, bringing the total spent since 2016-17 to R989 million.

indicating inadequate service delivery.


These critical Consultants were brought in to capacitate finance units accountability tools must be properly reviewed by with weak internal control environments, making it internal audit units and audit committees.

They must also very difficult for the consultants to be effective.

Despite be submitted on time.


The coordinating departments using consultants, the quality of financial statements should customise support interventions for each remained poor, with not a single municipality submitting municipality to improve and monitor submissions and a credible set of financial statements for auditing.

This financial management capabilities.

expensive, short-term solution is not sustainable.


Municipalities continued to flout legislated requirements, We performed additional work at four selected which resulted in irregular expenditure.

Compliance municipalities with repeatedly disclaimed opinions.

transgressions remained widespread and were Through this work, we established that these reported at 100% of the municipalities with completed municipalities did not have credible maintenance plans, audits.
The irregular expenditure closing balance resulting in dilapidated service delivery assets.

These was very high at R28,7 billion and continued to municipalities, on average, spent less than 3% on grow significantly every year, with the current year maintenance, compared to the norm of 8%.

The failing amount being R3,99 billion.


This is because irregular infrastructure, as evident in pothole-riddled roads across 76 expenditure was not properly investigated and there the province and failing water and sanitation treatment were no consequences for transgressions.

An estimated plants, is likely to result in significant harm to the 42% of all spending on procurement was irregular.

At general public.
At general public.

We issued three material irregularities eight municipalities, more than 50% of their expenses in this regard.

When fully addressed, this should result were irregular, raising the question of whether value for in better-functioning infrastructure assets and improved money was achieved.

service delivery.

Municipalities’ financial health was dire.


Most Most of the disclaimed municipalities were financially municipalities could not pay critical suppliers, distressed and did not have money to spend on such as Eskom and water boards, on time.

These service delivery initiatives.

It is important to track financially distressed municipalities depended on every rand spent by cash-strapped municipalities.
equitable share allocations, most of which went towards paying salaries and leaving little available We planned to analyse the actual payments made by these municipalities in the bank statements for service delivery.
The lack of a strong and effective against the transactions recorded in the financial accountability ecosystem will continue to result in statements, but some municipalities did not use unique cash-strapped municipalities that fail to account for payment identifiers in the bank statements to enable the resources entrusted to them.

The unauthorised meaningful matching and analysis.


This lack of unique expenditure incurred by municipalities indicates identifiers could lead to payments not being detected, that budgeting processes were inadequate and increasing the risk of fraudulent transactions and the expenditure was not monitored to ensure that it stayed in line with the approved budgets.

Management misappropriation of funds.


We are collaborating with the relevant government institutions to source the should take prompt action and use budget adjustments information needed to enable further analysis, which to accommodate key project deliverables.

The will form part of our follow-up audit.


MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 We issued nine material irregularities to repeatedly through the provincial executive council, will interrogate disclaimed municipalities because of their lack of the reports from coordinating departments to do an records and poor financial sustainability.
Municipal impact assessment of the initiatives implemented at managers are responding positively to financial municipalities.

The provincial legislature will deliberate recovery plan assistance and are developing action and consider the effectiveness of action plans and plans to address potential or actual harm.

remedial action in the reports on municipalities’ performance received from the MEC for local Overall, the state of municipalities obliged us to issue government.
The provincial treasury will strengthen 38 material irregularities to municipal managers, with the processes aimed at monitoring municipalities’ an estimated total financial loss of R627,2 million.

compliance with the Municipal Finance Management We find it encouraging that some municipalities are Act and the preparation of budgets, and has committed recovering financial losses, with R22 million having to act on the monthly outcomes of those budgets.
been recovered to date and a further R121,9 million The provincial cooperative governance department in the process of being recovered.

Financial losses are will reinforce the processes of compiling MFMA also being prevented and internal controls are being section 131 and MSA section 47 reports by basing improved to prevent harm and losses from recurring.
them on thorough diagnostic analysis to ensure that However, we remain concerned about the lack of they effectively address challenges at municipalities.

progress at some municipalities, which resulted in Coordinating departments will formulate and recommendations being included in the audit reports customise municipal support intervention plans for and three material irregularities moving to the remedial each municipality – provincial executives should set action stage.
We will continue to play our part by clear processes to monitor the success of these plans.

providing the respective leaders with the insights they need to hold municipal managers accountable.
We The lives and experiences of the citizens of North West also urge the councils to pay attention to the material were negatively affected by instability in political and 77 irregularity process, especially where municipal administrative leadership, which had a detrimental managers are not implementing our recommendations.

effect on service delivery.


All role players in the This should prevent matters from escalating to the point province should thoroughly and honestly reflect on the where they require remedial action or a certificate of debt to be issued.

The lack of consequences for those who neglect initiatives implemented during the term of the previous administration.
Establishment of preventative controls remains key and only a concerted effort to apply tailored approaches for problems that are unique to the their duties has not only created uncommitted and province will take local government forward.

Municipal unaccountable officials, but also normalised poor leadership and oversight structures will need to be performance.
This calls for decisive commitments exemplary in the accountability value chain and effect and actions, which we will track as part of the key commitments of the provincial executives.

The premier, consequences for accountability failures, swiftly and consistently.

MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES WESTERN CAPE Overall, the province continued on an upward trajectory, with a year-on-year improvement in audit outcomes.
From 2016-17, the previous administration continued to build on the foundation laid by its predecessors.

The firm leadership tone and strong control environment contributed to positive outcomes and the new administration should continue in this vein to sustain the positive outcomes and drive improved service delivery.
Audit committees and municipal public accounts committees should continue providing oversight and governance to sustain the improvement, and the province should maintain focus on effective financial management disciplines to support the good financial health at most municipalities.
In 2020-21, 18 municipalities sustained their clean Strong, institutionalised financial reporting disciplines audit outcome, with seven of these remaining clean were a hallmark of all the municipalities that received since the first year of the previous administration.
All an unqualified opinion on their financial statements, of the district municipalities except Garden Route with only Bitou and Prince Albert requiring material sustained their clean audit outcome from the previous corrections to achieve this outcome.

These municipalities 78 year, with Cape Winelands and West Coast having were supported by capacitated and competent finance achieved this outcome for the past five years.
The poor units under the direction of chief financial officers who outcomes of some municipalities within the Central had occupied the position for at least three years, Karoo and parts of the Garden Route were due to enabling the required stability and direction.
The instability in political and administrative leadership and support provided by the provincial treasury in the an inability to attract and retain suitably skilled staff due form of workshops and reviews also enhanced to their geographic location.

the quality of financial reporting.

Consultants were appointed to assist with the financial reporting process These factors further led to the delayed completion of at 25 municipalities at a cost of R32 million.
Over the the Beaufort West, Kannaland and Laingsburg audits term of the previous administration, R161 million was because their financial statements were submitted late spent on consultants and 20 municipalities made use (over the past four years, Kannaland and Laingsburg had submitted their financial statements late at least of these services annually.

Most municipalities used consultants for matters that were highly technical and twice).
All three of these municipalities received required specialised skills.

qualified opinions and had material findings on their performance reports.

The reported performance was Generally, the quality of performance reports was good; not supported by sufficient evidence and performance however, leadership (particularly at council level) needs targets were changed without the required approval.
to pay more attention to formulating and monitoring the The unreliability of performance information at these implementation of indicators and targets that address the municipalities affected the delivery of services to communities, as decisions about targets and budgets service delivery needs of all residents.

Our audit visits to municipalities showed continuing service delivery were made based on information that was not challenges, particularly relating to informal households.

credible.
credible.

This is because municipalities did not have adequate MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 04 systems and processes to accurately measure the number condition and in need of maintenance because they of informal households within their boundaries.

The were not being serviced at the required intervals.
quality of service delivery was also not reported on; for Additionally, final effluent at wastewater treatment example, municipalities reported on the number of taps plants did not comply with licence requirements; and installed but not whether the taps were actually working.

the minimum limits for chloride, suspended solids and The common set of indicators for metros (as determined E-coli were significantly exceeded.
by the National Treasury) was not fully implemented at the City of Cape Town due to a lack of systems and We issued two material irregularity notifications to processes, with the achievement of some indicators and the City of Cape Town – one for payments to service targets being set and reported as zero.

providers for goods and services not received, and one for paying external contractors for excessive standby Irregular expenditure, which was incurred at hours because a needs analysis was not performed.
27 municipalities, decreased to R1,23 billion from Upon receiving the notifications, the municipal manager R1,38 billion in the previous year.

Non-compliance initiated a forensic investigation and is currently in the area of procurement caused almost all of the implementing recommendations.

irregular expenditure and the material findings we raised on compliance.
Municipalities should continue To improve in the area of compliance and to prevent to focus on this area and develop detailed procurement possible material irregularities, municipal managers and plans to prevent findings, particularly those relating to senior managers need to lead by example, cultivate a deviations from competitive procurement processes.
culture of compliance, and ensure that consequences They should also continue investigating and dealing for accountability failures are effected swiftly, bravely with irregular expenditure – the closing balance and consistently.

decreased from R2,66 billion in the previous year to R1,50 billion in the current year.
During a recent engagement, the premier committed 79 to intensify support to municipalities with defective Over the term of the previous administration, the control environments and service delivery challenges.
City of Cape Town regressed from a clean audit This will include considering and collaborating on outcome to a financially unqualified opinion with strategic initiatives to address skills shortages as well findings on compliance with legislation relating to as enhancing current support initiatives, particularly the supply chain management and the prevention of municipal governance review and outlook, technical irregular expenditure.
The metro’s outcome remained integrated municipal engagements, and a joint district unchanged from 2018-19 to 2020-21.

We commend and metropolitan approach.

These initiatives cover the the metro on the quality of its financial statements implementation of municipal strategic and operational and performance report that were free from material plans, and their alignment to good governance misstatements.
The metro spent R2,68 billion on repearing and maintaining of its assets (valued at practices; and the strengthening of coordination with the provincial treasury, local government and other R53 billion).

At 5% of the value of the assets, the partners in the accountability ecosystem so that service spending was below the norm of 8%.

This resulted in delivery and the lived experience of citizens are the metro not meeting its spending performance target continuously focused on and improved.
The MECs for on repearing and maintaining of 95%, which will affect finance and local government should look at strategic the long-term service delivery potential of these assets.

ways to improve revenue collection at municipalities The metro continued to face service delivery challenges and some community concerns were not incorporated into the integrated development plan.

We saw and we encourage them to intervene and influence municipal leadership.
The intervention of coordinating ministries and leadership stability are encouraged to instances where container toilets were in an unhygienic address unfavourable outcomes.

MFMA 2020-21 Consolidated general report on local government audit outcomesPROVINCES SECTION 05 AUDIT FACT SHEET There are 257 municipalities and 62 municipal entities in local government.

This report focuses on the results of the 257 municipalities.
» Financial health: Based on 230 municipalities that The results of the municipal entities are consolidated with were assessed those of their parent municipalities and these outcomes are shown for consolidated municipalities.
» Infrastructure development and maintenance: Based on 232 municipalities unless it relates to specific infrastructure grants and water losses: However, the outcomes of 19 municipal entities are • Municipal infrastructure grant: 181 included in the information on audit outcomes, financial • Public transport network grant: 13 80 health, and service delivery planning and reporting.
• Urban settlements development grant: 8 Eight dormant and 35 small municipal entities are not • Regional bulk infrastructure grant: 28 reported on.
• Water services infrastructure grant: 82 • Water losses: 114 The numbers and percentages in this report are calculated based on the completed audits of » Assurance providers: Based on 218 municipalities, excluding municipalities at which a reduced audit 248 municipalities, except for: approach was applied » Consultants: Based on 206 municipalities that used consultants » Performance reporting: Based on 244 municipalities that submitted performance reports » Unauthorised, irregular, and fruitless and wasteful expenditure: Based on all 257 municipalities (including outstanding audits) » Supply chain management and internal controls: Based on 232 municipalities that were assessed » Internal audit units: Based on 215 municipalities where internal audit units had been established » Audit committees: Based on 214 municipalities where audit committees had been established To determine the movements over the administration, the results of the completed audits for municipalities are compared to their results in 2016-17.
MFMA 2020-21 Consolidated general report on local government audit outcomesSECTION 05 81 MFMA 2020-21 Consolidated general report on local government audit outcomesAUDIT FACT SHEET Physical address: 4 Daventry Road Lynnwood Manor Pretoria, SA Telephone: 012 426 8000 Fax to email: 012 426 8257 Postal address: PO Box 446 Pretoria, 0001 Email: agsa@agsa.co.za Website: www.agsa.co.za RP155/2022 ISBN: 978-0-621-50382-1